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PROGRAMME

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CRITICAL ACTNITIES

NON-CRITICAL ACTNITIES

Figure 4.1 Example of change in critical path caused by delay

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the employer's staff, all notices should be clearly set out, identifying the contractual provisions under which the notice is being given, together with sufficient information to enable the recipient to be aware of the actual, or likely, effects of the matters in respect of which the notice is being given. In the unfortunate (and sadly, too frequent) cases where notice of any kind, no matter how well justified, produces a hostile reaction and continuous allegations aimed at 'muddying the waters', there may be some justification in couching the terms of any notice so that it is almost disguised. If this approach must be adopted, the significance of the notice must be capable of being understood in the light of other documents and the surrounding circumstances. Having given notice, the contractor should keep contemporary records in order to illustrate the effects of the events, or circumstances, for which notice has been given. The recipient (the architect, or engineer) should also keep contemporary records. It is good practice to agree what records should be kept, to jointly monitor events and to agree facts during the progress of the works. Many contracts now contain express provisions for keeping records. Failure to agree facts is often caused by attempting, at the same time, to establish liability and entitlement. If both parties address their minds solely to agreeing facts as facts, leaving liability and entitlement for another day, agreement may be more readily achieved. The most common records which ought to be kept are:
a MasterDetailed Programme and all updates with reasons for each

update (preferably showing delays to each activity);


a adverse weather conditions, including high winds and abnormal

temperatures;
a Progress Schedule indicating actual progress compared with each
a

a a
a

a
a

a a
a

revision of the programme; Schedule of Resources to comply with the original and each revision of the programme; records of actual resources used based on progress; cash flow forecast based on the original and each revision of the programme; records of actual cash flow; schedule of anticipated plant output; records of actual plant output on key activities; records of plant standing and/or uneconomically employed (with reasons); schedule of anticipated productivity for various activities; records of actual productivity on key activities; schedule of anticipated overtime (and the costs thereof) in order to comply with the original and each revision of the programme;

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records of actual overtime worked and the costs thereof; progress photographs and (where appropriate) photographs of work to be covered up; where appropriate, video records showing sequence and method of working; drawing register with dates of each revision and notes of amendments; site diaries and diaries of key staff; minutes of meetings and notes kept at meetings; cost and value of work executed each month (for the project); cost and value of work executed each month for all projects (company turnover); allowance for overheads and profit in the tender sum; cost of head office overheads each month (quarterly or yearly if not possible on a monthly basis); profit (or loss) made by the company for each accounting period. Many contractors do not have the management information systems or procedures to keep all of these records. However, many of them are capable of being kept on site with the minimum of extra effort. It is important to specify what records should be kept by different members of staff. For example, the contents of the diary, and records kept by the project manager will be different from those kept by a section foreman. Company policy should lay down procedures and guidelines so that there is the minimum of duplication (save where it is essential for verification) and that there are no gaps in the information to be collected. The effect of failure to give notices and particulars varies from contract to contract. JCT, ICE and FIDIC contracts up to and including the 1987 fourth edition of FIDIC, for example, did not provide for notices and/or particulars to be a condition precedent to the contractor's rights to a claim for extensions of time or additional costs. However, the 1999 FIDIC Red, Yellow and Silver Books have changed all that. These new contracts require written notice of all claims (for time and money) within twenty-eight days (clause 20.1). This provision is a condition precedent and the contractor will therefore lose his rights to such claims if he fails to give notice in accordance with this clause (see 1.7, supra). The 1999 FIDIC Green Book makes provision of an early warning a prerequisite to an extension of time or additional costs (clause 10.3), with the proviso that some relief may be given having regard to any reasonable steps that the engineer may have taken to reduce the effects if an early warning had been given. Such provisions, which effectively 'time-bar' claims if the contractual machinery is not followed, are extremely onerous. It may be easy to comply with a provision to give notice within twenty-eight days in some circumstances, but not in others. The demand on management resources to iden-

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tify potential claim events in order to comply with the contract is likely to increase costs. Many notices will be for minor events which may not subsequently affect the works. Paperwork will increase unnecessarily and the resources required to deal with these notices and respond to them will also be increased. It should be noted that in some civil law jurisdictions, contracts may not be permitted to oust a party's legal rights to a remedy or compensation by the incorporation of 'time-bar' provisions. In such jurisdictions, contractors may be able to claim even if there has been failure to give notice within a specified period. However, it is advisable to follow the contract whenever possible to avoid the potential high cost of finding out if a late notice is good enough. Where time-barring of claims is outlawed, it should not be seen as an excuse to leave all notifications to the last minute. MF/l, a contract used extensively on major projects, contains very onerous provisions. Whilst sub-clause 33.1 (extensions of time) contains requirements to give notice 'as soon as reasonably practicable' (not a condition precedent), sub-clause 41.l(a) (notification of claims) requires notice to be given within twenty-eight days, failing which the claim will not be allowed (a condition precedent). The requirements to keep particulars and submit accounts of claims in the ICE and FIDIC contracts (including the 1999 FIDIC Red, Yellow and Silver Books) are subject to the proviso that the contractor does not lose his rights to any claims if he fails to comply, however his entitlement may be severely prejudiced by such failure (clause 53 of ICE and 1987 fourth edition of FIDIC and clause 20.1 of 1999 FIDIC contracts). On the employer's side of the fence, the architect, engineer, clerk of works and other staff should know what records they should each keep. If they are not kept jointly with the contractor, they should be agreed wherever possible. Keeping records for the purposes of defeating a claim in an arbitration may appear to be good practice, but it is more sensible to use them to settle contentious issues at the time so as to avoid costly disputes. In addition, if the contractor is aware that his grounds for a claim are doubtful (having regard to better records kept by the employer's professional team), it is more likely that the claim will be dropped and he will make an effort to get on with the job and possibly make up some lost time. The employer's professional team should keep additional records to monitor delays by the contractor and delays for which no additional payment is payable. Whatever records are kept, they are likely to be invaluable in the preparation of particulars in support of a claim. It should be remembered that particulars should, in addition to supporting the claim, be persuasive. It is all very well merely submitting all relevant records as particulars without

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some argument and illustration to set out the contractor's case and the entitlement sought, on the basis that it is the architect, or engineer, who is responsible for assessing the claim; but, once the architect, or engineer, has made their assessment, it is sometimes difficult to persuade them to change their minds. Their assessment may be insufficient because they did not appreciate the effects of some delays on the method, sequence or timing of an operation, or because they did not recognise the significance of some of the records submitted. Naturally, they may be reluctant to admit this fact, particularly if it will bring to light their inexperience, or emphasise that the delay was due to their own incompetence. Good particulars should, in addition to providing supporting records, illustrate the effects of the events, or circumstances giving rise to the claim. To this end, the contractor is well advised to provide details and diagrams indicating: what ought to have occurred if there had been no delaying event, or circumstance; what actually occurred as a result of the delaying event, or circumstance; analysis of facts, calculations, explanations and arguments to show how the delaying event, or circumstance, was responsible for the change in the method and/or programme.

4.10 Delays after the Contract Completion Date

The best advice that can be given to any employer is not to cause any delay after the contractual completion date (extended, if applicable) has passed and when the contractor is in culpable delay. Very few contracts deal with delays by the employer after the completion date, and in many cases, once such a delay has occurred, the time for completion is no longer applicable and the contractor is allowed a reasonable time for completion of the works. Even where the contract does provide machinery for extending the date for completion in the event of such delays, there are few guidelines as to how the extension should be dealt with, and the effects on the employer's rights to liquidated damages. The Singapore Architects Standard Form of Contract contains very detailed provisions in clause 24 (see Figure 4.2). In this f contract, it is intended that the employer may recover liquidated form o damages during a period of culpable delay by the contractor (even if a concurrent qualifying delay should occur during the period of culpable delay). Only if the contractor is not himself in delay is it intended that the employer's rights to recover liquidated damages be suspended during a further delay caused by a qualifying event or circumstance. However, with the greatest respect to the distinguished author of these provisions, they are unduly complicated, and they are likely to fail to protect the employer's

ORIGINAL COMPLETION PROGRAMME

EXTENDED COMPLETION PROGRAMME


(DUE TO D M Y S DURING CONTRACT PERIOD)

PROGRESS

CD

/ / / / / / / / / / / / I

a & 1

L 2

lDC

DELAY CERTIFICATE (Contract not cornplata by axtondad dote)

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TERMINATION OF DELAY CERTIFICATE (Contractor's dolay caasos) FURTHER D E U Y CERTIFICATE (Contractor's dolay rscornrnoncos) COMPLETION CERTIFICATE (Practlcal cornpletlon)

L D
CD DM LD

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4%

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- CULPABLE D E U Y (by Contractor) - DELAYING MATTER (after extended date) - PERIOD FOR LIQUIDATED DAMAGES

Figure 4.2 Clause 24 - Delay in completion and liquidated damages; SIA form of contract

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rights to liquidated damages if the delay which occurs (after the completion date has passed) is one within the employer's control and which was caused by an event which would in any event have prevented the contractor from completing by the due date (provided of course that the employer was not relying on the contractor's progress in order to comply with a contractual, or statutory provision). Possible circumstances which give different results are given in Chapter 5. If such delays cannot be prevented, careful monitoring and records are vital where there are several causes of delay after the completion date has passed.
4.11 Minimising Exposure to Claims: Prevention

Stringent notice provisions and requirements to give particulars may be effective in avoiding claims by contractors who do not follow such provisions. However, this may increase the contract price and lead to conflict throughout the contract. Whether, or not, there are sensible contractual provisions, and whether, or not, the contractor complies with them, the employer's professional advisors can minimise exposure to claims by ensuring that they do not cause delay by matters within their control (such as issuing late information). It is a mistake to assume that information can be delayed on the grounds that the contractor is in delay and is not ready for it. In many cases the contractor will be able to make out a case for an extension o f time (or even time at large), particularly if the information is received at a time when it can be shown that it would have been impossible to complete the works by the due date having regard to all of remaining activities (see Figure 4.3). Scheduling issuance of information in accordance with the contractor's progress is a recipe for disaster and to be avoided at all costs. Where delay and/or disruption claims occur, careful attention to records and constant monitoring of the effects will enable the employer to minimise his exposure. Inflated, or exaggerated, claims can be refuted. Costs which are partly to be borne by the contractor can be identified and adjustments made (see Chapter 7 - concurrent delays). Even where delays on the part of the employer justify an extension of time, the contractor's claim for payment can be reduced, or disallowed, where it can be shown that the contractor was also in delay and the costs claimed would, in any event, have been incurred by the contractor. Delays, and claims arising out of them, are almost inevitable in construction contracts. If this fact is acknowledged, and proper procedures are devised to deal with them, then claims would be more palatable to those having to pay for them. Usually, all parties are at fault to a varying degree,

@ @

CONTRACTOR'S DELAY

DELAY IN ISSUING INFORMATION TIME REQUIRED TO COMPLETE ALL REMAINING ACTIVITIES WHICH CANNOT PROCEED UNTIL INFORMATION ISSUED DELAY TO COMPLETION

@
@

DATE INFORMATION REPUlRED IN ACCORDANCE WlTH PROGRAMME

DATE INFORMATION ISSUED IN ACCORDANCE WlTH PROGRESS

Figure 4.3 Time required to complete remaining work after late instruction

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and adversity thrives on one or more parties attempting to place all of the blame on someone else. Contractual provisions do not, in themselves, avoid these problems. Education and training in contracts administration f claims and how they should be encouraged to improve the understanding o arise.

Formulation and Presentation of Claims

5.1 Extensions of Time Claims


All modern building and engineering contracts contain provisions for extensions of time in the event of delay. The nature of the work and the environment in which the work is carried out are such that it is almost inevitable that events and circumstances will cause completion of the work to be delayed beyond the original completion date. Notwithstanding, claims for extensions of time probably cause more disputes than any other contractual or technical issues. Major obstacles to prompt settlement of claims for extensions of time claims are:
a a

a a a

the erroneous assumption that an extension of time is automatically linked to additional payment; late, insufficient or total lack of notice of delay on the part of the contractor; failure to recognise delay at the appropriate time and maintain contemporary records; failure to regularly update the programme so that the effects of delay can be monitored against a meaningful 'programme of the day'; poor presentation of the claim to show how progress of the work has been delayed; insistence, on the part of the employer's professional advisers, that unreasonably detailed critical path programmes are essential in order to assess the effects of the delay; the probability that the cause o f the delay will reflect on the performance (or lack of it) on the part of the employer's professional advisers; pressure, on the part of the employer, to complete on time, irrespective of delays which occur.

The first obstacle - delay means money - is understandable. Nevertheless, it should not be a consideration when dealing with extensions of time. It should be clearly understood that an extension of time merely enables the contractor to have more time to complete the works and the employer to

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preserve his rights to liquidated damages. An extension of time awarded for a cause of delay which appears to have a financial implication (delay within the control of the employer) does not necessarily lead to an entitlement to additional payment. If the contractor is, himself, also in delay, then the additional costs arising out of the extended period to execute the works may (in total or in part) have to be borne by the contractor (see concurrent delays, infra). On the other hand, an extension of time awarded for neutral events (for example adverse weather conditions) will not necessarily deprive the contractor of a claim for additional payment. The latter point was clearly illustrated in the case of H. Fairweather & Co Ltd v. London Borough of Wandsworth (supra). In this case the arbitrator had concluded that the architect had been correct in awarding eighty-one weeks' extension of time for the dominant cause of delay (strikes). The arbitrator had stated that the extension did not give rise to a claim for direct loss or expense. The contractor sought to establish that eighteen weeks' extension of time ought to have been granted for causes of delay which would give rise to a claim for loss or expense. The contract was JCT63 in which some of the causes of delay (or disruption) in the loss and expense clause (24) are set out almost verbatim as some of the causes of delay in the extension of time clause (23). This is unfortunate and misleading and may be one of the reasons for some practitioners to assume a link between extensions of time and claims for additional payment. This misconception was cleared up by Judge Fox-Andrews QC in a hypothetical example which is summarised below:
A tunnelling contract proceeds through the winter and is due to complete on 31 July. A variation instruction is issued in April which requires a further three months for completion of the works and for which an extension of time is granted up to 31 October. Two weeks before the revised completion date a strike occurs which continues until 31 March. The works cannot proceed and time passes through a second winter. On 1 April, the contractor recommences work, but due to the fad that it had not been able to protect its plant and equipment during the strike it takes two months to complete the remaining work. An extension of time for eight months for the strike (under clause 23(d) of JCT63) would not prevent the contractor from recovering loss and expense under clause ll(6). (See Figure 5.1.)

Nevertheless, in the circumstances of the case, the judge recognised the practical difficulties in the event of the extension of time not being made under the provision which linked the extension to the provisions of clauses 11(6)and/or 24(1) and he remitted the matter to the arbitrator for further consideration. It should be noted that clause 26.3 of JCT80 contains provisions which suggest a link between a claim for loss and/or expense and certain extensions of time made under clause 25. Whilst this may be desir-

Formulation and Presentation of Claims

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ORIGINAL CONTRACT PERIOD

STRIKE

COMPLETE
WORK

=
=I -4

EXTENSION OF TIME DUE TO STRIKE

*--I

QUALIFYING PERIOD FOR LOSS & EXPENSE

Figure 5.1 H. Fairweather & C o Ltd v. London Borough o f Wandsworth

able from a practical point of view, practitioners should not be misled into assuming that an extension of time for the specified relevant events will bring with it an entitlement to additional payment. The next three obstacles, notice, contemporary records and programme, are all practical matters which can only be addressed by ensuring that adequate contracts administration procedures are being followed from the date of commencement of the works. Whilst the architect, or engineer, must do their best to estimate the length of any extension of time which may be due, irrespective of the lack of notice and particulars given by the contractor (London Borough of Merton v. Stanley Hugh Leach Ltd, supra, Chapter I),contractors cannot complain if the extension made on the basis of inadequate information does not live up to their expectations. 5.2 Presentation of Extensions of Time Claims Most contracts do not require the contractor to do more than give notice of delay, maintain records and provide particulars. Notice provisions vary. Some examples are: JCT80 - '. . .whenever it becomes reasonably apparent that the progress of the Works is being or is likely to be delayed the Contractor shall forthwith give written notice . . .' (Clause 25.2.1).

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GC/Works/l, Edition 3 and 1999 - Notice may be given at any time, but not '. . . after completion of the Works' (clause 36(4)).Clause 35 contemplates regular review of extensions of time, but there is no link to clause 36. ICE fifth edition - Full and detailed particulars '. . . shall be given within 28 days after the cause of the delay has arisen or as soon thereafter as is reasonable in all the circumstances. . .' (clause 44(1)).Similar provisions appear in the sixth and seventh editions. JCTSO goes on to require the contractor to give particulars of the expected effects of the delay (clause 25.2.2.1) and an estimate of the extent of any delay in completion of the works beyond the completion date (clause 25.2.2.2). None of the above provisions requires the contractor to show the effects of the delay or how it arrived at its estimate of the period of delay. Provided that the contractor has given details of all events, dates, what work was affected and the like (together with an estimate of the delay in the case of JCT80), it appears that the contractual provisions have been satisfied and the onus is then on the architect, or engineer, to decide what extension is reasonable on the basis of the particulars provided and/or on the basis of further information obtained from other sources. Many contractors only provide information (often insufficient) and rely on the architect, or engineer, to make a reasonable extension of time. This tactic can be successful, but there is a risk that the extension made will be insufficient. Not all is lost, as the contractor can always present his case at a later date, hoping to persuade the opposition that more time is justified. The problems with this approach are: it is usually more difficult to persuade someone to change their mind after they have made a written extension of time unless there is additional evidence which can be used to explain a change in the period of the extension; there will almost certainly be a period of protracted discussion during which the current (extended or otherwise) completion date and the progress of the works are inconsistent with a realistic programme and a subsequently revised extended completion date.

I D I C contracts partially address the above The NEC and the 1999 F problems. Clause 32.1 of the NEC requires the contactor to show the effects of implemented compensation events and of notified early warning matters on each revised programme. Clause 64.1 requires the project manager to assess a compensation event if the contractor has not submitted a revised programme.

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Clause 4.21 of the 1999 FIDIC Red, Yellow and Silver Books requires the contractor to compare actual and planned progress and to show details of any event or circumstance which may jeopardise completion. The two problems listed above must be avoided or their effects will be compounded, making it difficult to monitor future delays and to make realistic extensions of time having regard to all of the circumstances. The better approach, on the part of the contractor, is to present his claim for an extension of time, showing how he arrived at his estimate of delay and the effects on completion of the works. If the contractor has a detailed critical path programme using one of the well-tried software packages, or a tailor-made package, then this task can be simplified. Unfortunately, many contractors who use such packages become complacent, believing that the programme, and the software used, is the answer to all of their problems. Computer applications can only be truly effective if the delays are quickly identified and steps are taken immediately to monitor events and update the programme. In many instances, full-blown computer applications are not necessary. Carefully prepared linked bar chart programmes can be very effective provided that the original logic is right.

Example 1: A single cause of delay on the critical path


A linked bar chart showing how the contractor intended to complete the works in twenty-two weeks is shown in Figure 5.2. A qualifying delay (Dl)of two weeks occurred during weeks six and seven E (which is on the critical path - see Figure affecting progress of activity B5.3).In these circumstances it is a relatively simple matter to recognise that completion of the works was likely to be delayed by two weeks and an extension of time should be made for the full period of delay giving a revised completion period of twenty-four weeks. The above example is straightforward as it deals with delay which is on the critical path and there are no concurrent delays. What is the situation in the event of delay which is not on the critical path? Some authorities exist which may be of some assistance (see Example 2).

Example 2: A single cause of delay - not on the critical path


Using the same linked bar chart in Figure 5.2, a qualifyiig delay 032) of two weeks occurred during weeks six and seven which affected the progress o f activity F 3 G (which is not on the critical path - see Figure 5.4). In these circumstances there is no effect on the completion date and no extension of time is necessary. In Glenlion Construction Ltd v. The Guinness Trust (supra), the judge had to consider matters of extensions of time where the contractor had pre-

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Formulation and Presentation of Claims

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pared a programme showing completion of the works before the contractual date for completion. Tenders were invited on the basis of a contract period of 104 weeks. Glenlion submitted an alternative tender for completion in 1 1 4 weeks which was accepted by Guinness. The completion date inserted in the contract was 114 weeks after the date for possession. The contract required Glenlion to produce a programme showing completion 'no later than the date for completion' and Glenlion complied by producing a programme which showed completion in 1 0 1 weeks. There were delays and disputes arose as to Glenlion's entitlement to an extension of time. The crucial text of the judgement is (at page 104):
'Condition 23 [extensions of time] operates, if at all, in relation to the date for completion in the appendix. A fair and reasonable extension of time for completion of the works beyond the date for completion stated in the appendix might be an unfair and unreasonable extension from an earlier date.' [Emphasis added]

It must be concluded that if any delay occurs then it is not necessarily correct to make an extension of time equal to the period of delay. Some, or no, extension of time may be required. How much extension (if any)? The following quote from Hudson 's Building & Engineering Contracts, tenth edition, First Supplement at page 639 may be helpful:
'. . . a contractor may be in advance of planned progress and an event justifying an extension will only have the effect of his losing that advantage, should some later default occur, but not imperil the actual date. Ideally such an extension need only be given if the contractor later has need of it - i.e. by being in culpable delay. . . .'

The above quote from Hudson confirms the widely held view that any float in the contractor's programme is for the benefit of the contractor and any delay on the part of the employer which reduces that float may have to be taken into consideration when considering the time required for completion. This concept can be applied to Glenlion v. Guinness as shown in Figure 5.5. Bar A indicates the period for completion stated in the tender documents (104 weeks), bar B indicates the period for completion stated by Glenlion in the alternative tender (114 weeks, which was accepted by Guinness) and bar C indicates the period indicated in Glenlion's programme (101 weeks). The programme shows completion thirteen weeks before the contractual date for completion. Assume that a delay of five weeks occurs at the outset of the contract for which there is power to make an extension of time (that is, a qualifying delay or relevant event - bar D). This has the effect of reducing the contractor's float from thirteen weeks to eight weeks. No extension of time is necessary as completion is not likely to be delayed beyond the contractual date for completion.

--

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Formulation and Presentation of Claims

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A further qualifying delay of four weeks occurs during the contract period (bar E). Again, this only reduces the contractor's float from eight weeks to four weeks and no extension of time is necessary. Another qualifying delay of four weeks occurs towards the end of the contract which takes up the remaining float (bar F). Again, no extension of time is necessary. Four weeks before completion, a further delay of four weeks occurs which does not qualify for an extension of time (for example, culpable delay on the part of the contractor). In these circumstances the contractor has need of an extension of time and it would therefore be reasonable to make an extension of time of four weeks. Difficulties may arise under JCT80 because the extension of time clause (25.3.1) contemplates an extension of time being made if '. . . completion of the Works is likely to be delayed [by the relevant event] beyond the Completion Date. . .'. In the above example, completion of the works was delayed beyond the completion date by an event which did not qualify for an extension. However, the circumstances described in this example may be covered by the provisions of clause 25.3.3 which empowers the architect to '. . . fix a Completion Date later than that previously fixed if in his opinion the fixing of such later Completion Date is fair and reasonable having regard to any of the Relevant Events . . .' [Emphasis added]. Some may argue that clause 25.3.3 does not apply in these circumstances. Even if that view were to be correct, the employer would be unlikely to succeed in claiming liquidated damages for late completion when it has been partly responsible for the delay to the progress of the works. Regard may have to be paid to the nature of the contractor's culpable delay. Sheer dilatoriness on the part of the contractor may be viewed in a different light from matters such as a plant breakdown or failure to obtain materials in spite of taking all reasonable measures. Those who resist making an extension of time in circumstances similar to the above example may be persuaded to change their view by considering the position if any (or all) of the delays in bars D, E and F had been due to the contractor's own delay and the delay in bar G had been due to a qualifying delay. In these circumstances, there is no room to argue that an extension of time is not required. This would appear to be the case even if the contractor's own delays had been due to dilatoriness, since the contractor would not be in breach of its obligation to complete until the completion date had passed. The Glenlion case only dealt with delays and extensions of time when the contractor's programme showed early completion. The South African Case, Ovcon (Pty) Ltd v. Administrator Natal (infra), also dealt with delays when the contractor's programme showed early completion. However, the Ovcon case did not deal with extensions of time because the contractor's programme showed completion four months earlier than the contract com-

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MONTHS

9 1 0 1 1 1 2 1 3 1 4 1 5

CONTRACT PERIOD

OVCON'S PROGRAMME

FLOAT

I-

I ,

ACTUAL PROGRESS

PROLONGATION

Figure 5.6 Ovcon (Pty) Ltd v. Administrator of Natal 1991 (4) SA 71

pletion date, and the contractor finished one month early as a result of a three months' delay by the employer (see Figure 5.6). The Ovcon case was concerned with the additional costs claimed by the contractor (which Glenlion did not have to consider) and is discussed in 5.9 (infra). It should be noted that clause 63.3 of the NEC contains the following provision:
'A delay to the completion date is assessed as the length of time that, due to the compensation event, planned Completion is later than planned Completion as shown on the Accepted Programme.' [Emphasis added]

It follows that if the accepted programme showed early completion, any qualifying delay which affected the planned completion date would merit an extension of time. Therefore, provided that the original float in the contract was not eroded by the contractor's own default, the period of float would be preserved. Note - Clause 33 of GC/Works/l, Edition 3 and 1998 Edition, requires the contractor's programme to '. . . use the whole period for completion.'

Example 3: Concurrent delays

- critical and non-critical

Using the same linked bar chart in Figure 5.2, the delays referred to in examples 1and 2 above occurred at the same time (see Figure 5.7). If both of the delays were qualifying delays, an extension of time of two weeks is necessary for the delay (Dl) which affected activity B E . If the delay to activity 5 E is a qualifying delay, and the delay (D2) to activity J3-G is due to the contractor's culpable delay, an extension of time of two weeks is necessary. This is the case even when it is clear that the concurrent delays

Formulation and Presentation of Claims

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are operating during identical periods. This would also be the case if the contractor's culpable delay (D2) to activity B-G was on a parallel critical path and therefore also delaying completion by two weeks. If the delay (Dl) to activity J3-E was due to the contractor's culpable delay, and the delay (D2) to activity B-G was a qualifying delay, then no extension of time would be necessary.

Example 4: Concurrent delays followed by subsequent delays


Using the same linked bar chart in Figure 5.2, the delays referred to in Examples 1-3 above were followed by further delays of seven weeks (D3) and five weeks (D4) to activities B-G and H-K respectively. If delays (Dl) and (D2) were both qualifying delays (or if delay D2 was a nonqualifying delay), an extension of time of two weeks should already have been made (completion in twenty-four weeks). If delay (D3) was also a qualifying delay it would have the effect of delaying commencement of activities G H and H-K, but no extension of time would be necessary because the float allowed K is more than sufficient to absorb the delay (the float is for activity Hreduced from five weeks to four weeks - see Figure 5.8). However, for the reasons given previously, if delay (D4)occurred because of some event which did not qualify for an extension of time (for example, non-availability of materials, such as road surfacing, which could not be stored on site for use), an extension of time may be necessary because the contractor had need of it (see Figure 5.9). In these circumstances, qualifying delays 0 2 ) and (D3) had reduced the contractor's float and nonqualifying delay (D4) had used up more than the remaining float, thereby causing completion to be delayed by one week (completion in 2 5 weeks). If delays (D2) and (D3) had not occurred, there would have been sufficient float remaining in activity H-K to absorb the delay (D4) and there would have been no delay to completion beyond the previously extended completion period of twenty-four weeks. Numerous permutations may arise and each delay and its effects on the remaining float and the completion date need to be considered using the principles described above.
5.3 Delays After the Contract Completion Date

It is well known that the extension of time provisions of JCT63 (clause 23) do not deal with delays which occur after the contract completion date (extended or otherwise) has passed and the contractor is in culpable delay. Indeed the clause is drafted in terms which appear to preclude making an

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Formulation and Presentation of Claims

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extension of time for any delay which occurs after '. . . any extended time [date] previously fixed. . . .' [Emphasis added] That is to say, even if an extension of time ought to have been made for previous delays, if the extension has not been made by the (then) current extended completion date, and a new (otherwise qualifying) delay occurs, there is no power to extend time for completion. This situation does not appear to be capable of rectification by subsequently making an extension of time for the previous delay, thereby causing the new delay to occur before the subsequently revised extended completion date. It is doubtful if any current contract in the United Kingdom is executed under the terms of JCT63. However, extensions of time provisions identical to JCT63 are still in everyday use in many parts of the world. Bahrain, Cyprus, Hong Kong and Jamaica are a few examples. Wherever these contracts are in use, it is therefore essential to make extensions of time for all known delays (whether, or not, notified by the contractor) before the existing completion date has passed. Failure to do so may cause time to be at large and invalidate the liquidated damages provisions. Problems associated with delays after the completion date are not confined to JCT63, Hudson's Building & Engineering Contracts, tenth edition, First Supplement at page 653:
'One further matter not covered by the vast majority of extension of time clauses is whether they are intended to operate during a period of culpable delay in respect of matters which, but for the contractor being in delay and already liable for liquidated damages, would entitle the contractor to an extension. Careful analysis shows that, if so, additional machinery is required. . . . No UK standard form as yet contains any such provision.'

The distinguished author of Hudson has gone to great lengths to introduce the necessary 'additional machinery' in clause 24 of the form of contract issued by the Singapore Institute of Architects. It is not considered to be necessary to deal with this clause at length in this chapter. However, a diagram showing how the clause is intended to operate is shown in Chapter 4 (see Figure 4.2, supra). Other widely used forms of contract at the time of publication of the First Supplement to Hudson were: the fifth edition ICE conditions of contract, third edition FIDIC, GC/Works/l Edition 2 and a few minor works forms of contract. These forms of contract do not appear to prohibit extensions of time after the completion date has passed. However, the provisions are unclear and there is no guidance as to the period of extension, and its effect on the employer's rights to liquidated damages. Later forms of contract, such as JCTSO and fourth edition FIDIC, offer nothing to assist in this situation. The Intermediate Form of Contract (IFC84)expressly provides for extensions of time to be made for delays which occur after the

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Construction Contract Claims


ORlClNU PROCRANUE

V//////////////////////////////A
DELAY (Dl)

m u 1 \ . \ \ x m \ \ \ \ \ \ \ ' i \ \ \ \ = -

PROGRESS

EOT (NCD1)

Figure 5.10 Delay by employer after completion date

completion date has passed, but there are no rules setting out how this should be done. These problems are addressed in the following example (see Figure 5.10). In this example it can be seen that a delay (Dl) which occurs before the contract completion date is capable of being dealt with by an appropriate extension of time. A new completion date (NCD1) can be fixed according to the circumstances. When a new qualifying delay (D2) occurs after the completion date has passed and the contractor is in culpable delay, what period of delay should qualify for an extension of time? Should it be the total period of delay (TD) from NCDl to the earliest completion date caused by the new qualifying delay, or should it be for the nett period of the new qualifying delay (ND)? Can liquidated damages be levied? Consider two possible alternatives:

Alternative A
Eight weeks after the contract completion date, the contractor commences excavation for the final connections to the foul drainage. The work ought

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to have been carried out not later than two weeks before the completion date. With the exception of delay (Dl),there have been no delays for any reason other than the contractor's failure to proceed in accordance with its programme. Unknown existing gas main and power cables are discovered which necessitate a variation to change the routing of the drainage and the construction of an additional inspection chamber. The additional work causes a delay of one week (D2) and completion of the works is delayed by one week. In these circumstances, had the contractor not been in culpable delay, the necessity for a variation would have come to light before the completion date and an extension could have been made at the time. Therefore, if the contractor had been proceeding in accordance with his programme, one week extension of time (beyond the date already fixed as a result of delay D l - NCD1) would have been reasonable (ND).

Alternative B
In the same circumstances as Alternative A, eight weeks after the completion date has passed, the contractor is instructed by the architect to cease work on the excavation for the foul drainage. The architect then instructs the contractor to vary the levels and diameter of the pipes and construct an additional inspection chamber and two additional branch connections for a future extension. The additional work causes a delay of one week (D2) and completion of the works is delayed by one week. In these circumstances, the architect could, and ought to have, ordered the additional work in sufficient time to enable the work to be carried out before the completion date and without causing delay. The variations ordered by the architect were not dependent upon the contractor's progress and could not be attributable to the contractor's culpable delay. If the contract permitted an extension of time for delays which occurred after the completion date had passed, an extension of time for a period of ten weeks may be reasonable in the circumstances (TD). In Balfour Beatty Building Ltd v. Chestermount Properties Ltd (1993) 62 BLR 1it was held that on the wording of clause 25 of the 1980 Edition of JCT (The Joint Contracts Tribunal - JCT80) form of contract, an extension of time granted retrospectively, after the completion date, for delay caused by the employer was valid. This decision seems to have put an end to the uncertainty regarding delays which occur after the completion date has passed and the contractor is in culpable delay. Or has it? This case, and its implications, are of sufficient importance for consideration in detail. The facts of the case are summarised below (see also Figure 5.11).

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The original agreed works to the core were intended to be completed by 1 7 April 1989. This date was extended on 11 October 1988 giving a revised completion date of 9 May 1989. By February 1990, Balfour Beatty were several months late and already liable for liquidated damages. It was agreed that fitting-out works would be carried out by Balfour Beatty and a number of architect's instructions were issued between 1 2 February 1990 and 1 2 July 1990. It was agreed that these were variations to the original works. Balfour Beatty completed the original works (core only) by 1 2 October 1990 and went on to complete the fitting-out works by 2 5 February 1991. The architect granted two further extensions of time to account for the additional fitting-out works. The first, issued on 18 December 1990, extended the previously extended completion date by 126 days (to 1 2 September 1989) and the second, issued on 14 May 1991, made a further extension of 7 3 days (to 2 4 November 1989), that is, before the date of the first variation instruction. Balfour Beatty's arguments were two-fold:

(1)That the effect of issuing the variation instructions for the fitting-out works rendered time at large, in which case Balfour Beatty were obliged to complete the works within a reasonable time and Chestermount would lose its rights to levy liquidated damages. (2) Alternatively, if time was not at large, Balfour Beatty were entitled to an extension of time calculated by adding the period required for fittingout to the date when the additional works were ordered. According to Balfour Beatty, this should have resulted in an extended completion date of 2 5 February 1991, that is 54 weeks after 1 2 February 1990 (when the work was actually complete).
Mr Justice Colman did not agree with Balfour Beatty. He held that clause 25.3.3 of JCT80 (the Form of Contract in this case) empowered the architect to grant an extension of time after the completion date had passed and, when the contractor was in culpable delay, that it was right and proper to add a reasonable period to the previously extended completion date (of 9 May 1989) and that the final extended completion date of 2 4 November 1989 was reasonable even though that date was before the date when the additional works were ordered. How does this judgement affect other forms of contract? The Intermediate Form of Contract provides for extensions of time to be granted for any qualifying causes (relevant events) occurring after the date for completion. Many engineering contracts also contemplate extensions of time for delays after the completion date. Contracts such as ICE and FIDIC contemplate extensions of time which are fair and reasonable.

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I
I

The sixth and seventh editions of the ICE conditions also contain novel provisions regarding liquidated damages (infra). One form of contract, still widely used internationally, the JCT63 form, by the peculiar wording of the extension of time clause, appears to prohibit extensions of time for any delays occurring after the completion date. Had this form of contract been used in the Balfour Beatty case, perhaps the contractor's first argument would have succeeded. However, this case left some issues unanswered. Whilst some modifications were made to the standard form of contract (it was said that these were of no consequence to the issue), there is no explanation as to why the completion date was originally 1 7 April 1989 and why the first extension of time was added to that date when, on 16 June 1988, the parties signed a contract which expressly included a date for completion of 16 June 1989. The extension of time clause in JCT80 contemplates extensions of time if completion is delayed beyond the completion date. It appears that the first extension of time made on 1 0 October 1988 (giving a new completion date of 9 May 1989)did not extend the completion date given in the appendix to the contract. The second extension of time made on 18 December 1990 (giving a new completion date of 1 2 September 1989) appears to be outside the powers given to the architect in clause 25.3.1. However, this may be a sterile argument on the grounds that the architect could subsequently make a valid extension under clause 25.3.3. Why did Balfour Beatty not ask for an acceptable extension of time before agreeing to carry out the extra works? (See Fairclough Building Ltd v. Rhuddlan Borough Council in 6.3, infra). Perhaps Balfour Beatty thought that instructions to carry out the extra works would get them off the hook for damages of any sort. Why was it fair and reasonable in all the circumstances to grant an extension of time to 2 4 November 1989 (before the date of the instruction for the extra works) when it was clearly impossible for Balfour Beatty to complete the works until several months after the issue of the variation instruction? With respect to the last of the above questions, close examination of the facts, as shown in Figure 5.11, indicates that it was highly likely that the commencement of fitting-out works was dependent upon Balfour Beatty completing a substantial part of the original core works. Chestermount may have been justified in wondering whether or not Balfour Beatty would ever finish. Had Balfour Beatty been proceeding according to programme and heading for completion by 9 May 1989 (the first extended completion date), Chestermount could have ordered the fitting-out works by (say) December 1988 and works could have been completed by 2 4 November 1989 (see Figure 5.12). If that was the case, the architect was fair and reasonable in

1 14

Construction Contract Claims

for fifflngaut war*.

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I

EMrnlon oftlms made for mting>utworks

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Pnctkd c o m ~ of n worts lncludlngmtingout wads WlI

Figure 5.11 Balfour Beatty Building Ltd u. Chestermount Properties Ltd (1 993) 62 BLR 1

PnctlUl m p h mof
I

2U11

Extsnlon ofthwmadefiwmtingwtwodm
I

Bnlfour8ealty's IlnbllHy for LD

Figure 5.12 Balfour Beatty Building Ltd u. Chestermount Properties Ltd (1993) 62 BLR 1: possible effect of uariation to add fitting-out works if no delay by Balfour Beatty (explanation of extension of time to 24 November 1989)

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making the extension to 24 November 1989. (This analysis and explanation is consistent with Alternative A above.) However, what would have been the verdict if the cause of the delay (occurring after the completion date) had been independent of Balfour Beatty's progress as described in Alternative B above? Assume that on 1 2 February 1990, it was discovered that the design of the structural core was defective on all floors. Discovery of the defect was not dependent upon Balfour Beatty's progress. Remedial works would have to be designed. Demolition of part of the completed works would be required and no further work on the remaining (incomplete)structure could proceed until the remedial works were complete. In these circumstances, perhaps it would be reasonable to make an extension of time on a gross basis, that is until the date when the remedial works and remaining works could reasonably be expected to be complete. If a gross extension was not made, Chestermount would, in these circumstances, benefit from its own default by being able to levy liquidated damages during a period when the building could not, in any event, have been completed because of the design fault. What would be the situation, if, for example, a strike had occurred after the completion date had passed? Would it have been reasonable to argue that if Balfour Beatty had completed on time, the works would not have been delayed by the strike (hence, no extension)? Imagine the difficulty if numerous delays such as strikes, adverse weather conditions and extra works were affecting the progress of the works after the completion date had passed. It would seem, therefore, that each case may have to be looked at on its merits. The Balfour Beatty case dealt with a single delaying matter by the employer concurrent with Balfour Beatty's own delay. In practice, many delays may occur after the completion date. It may not be correct to rely on the decision in Balfour Beatty v. Chestermount to justify variations or late issuance of information after the completion date has passed. All that this case appears to do is set out what should be decided in the particular circumstances which arose in connection with this contract. What are the alternatives? It can be seen from Figure 5.13 that Balfour Beatty were ultimately given an extension of time to 2 4 November 1989 and were liable for liquidated damages after that date until completion on 25 February 1991. Under the ICE conditions of contract, clause 47(6) provides for liquidated damages to be suspended in the event of such a delay occurring after the completion date when the contractor is already liable for liquidated damages. Therefore, had this form of contract applied, Balfour Beatty would have been liable for liquidated damages until 1 2 February 1990, after which its liability would be suspended for the period of delay (in this case twenty-eight and a half weeks). Thereafter, liquidated damages would con-

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Construction Contract Claims

Pnctlcal completion of wo

Banour Bemy's lhbllltyforLO In ascordawe *mh the judement

I
I
I

Unlipuld.t.ddaMpn

or altemnhely

Unliquld.t.d danugm

Figure 5.13 Balfour Beatty Building Ltd v. Chestermount Properties Ltd (1993) 62 BLR 1: comparison of various liabilities for damages for late completion if extended date for completion (24 November 1989) is a reasonable date

tinue until completion. The nett result would have been identical to that which arose using JCT80. Had Balfour Beatty been successful in arguing that time was at large and that Chestermount had lost its rights to liquidated damages, one of the following alternatives may have applied:

(1) Liquidated damages would be payable from 10 May 1989 to 12 February 1990 and general damages (damages which Chestermount could prove flowed from Balfour Beatty's default) would be payable thereafter, or (2) General damages would be payable for late completion calculated from 10 May 1989.
If either of the alternatives (1)or (2) above applied, Balfour Beatty may have been no better off (or indeed worse off). There is at least the possibility that general damages could exceed liquidated damages: Rapid Building Group Ltd v. Ealing Family Housing Association Ltd (see 1.4,supra). Under the Singapore Institute of Architects standard form of contract, as in the ICE contract, liquidated damages are suspended for the period necessary to complete the variation (clause 24). However, it appears that the suspension only comes into effect if the contractor is not also in default during the same period (see 4.10, supra). In the circumstances of this case,

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Balfour Beatty may have been liable for liquidated damages for the entire period from 1 0 May 1989 until completion on 25 February 1991, in spite of the fact that Chestermount ordered extra works requiring twenty-eight and a half weeks to execute. Perhaps clause 24 of the Singapore contract will not stand up if tested in the courts of Singapore in similar circumstances. Under the NEC, the matter appears to be simply dealt with in clause 63.3 (see 5.2, supra). Under the NEC, there may be problems if the programme is not properly and regularly updated or if programmes are not accepted by the project manager.

5.4 Summary on Presentation of Extensions of Time Claims


In any claim for an extension of time, and whether or not there is a requirement to give details and particulars, it is good practice to include the following: a description of the cause of delay and the contractual provision which is being relied upon for the extension; the date when the delay commenced and the period of delay (giving details of intermittent effects, if appropriate); the date of notice of delay, specifying the reference of the relevant document; a summary of records and particulars relied upon (with copies included in an appendix); a narrative of the events and effects on progress; a diagrammatic illustration showing the status of the programme, progress and current completion date prior to the commencement of the delay; a diagrammatic illustration showing the effects of the delay on progress and the completion date (including subsequent delays which may have reduced the float in the programme); a statement requesting an extension of time for the delay to completion for the period shown on the submitted illustrations.
5.5 Recovery of Loss and/or Expense and/or Damages

Whilst failure to give notice of delay for extensions of time is not usually fatal to a claim, failure to give notice in accordance with the contract with respect to additional payment may bar, or severely prejudice a claim. There are good reasons for contracts to have provisions for the contractor to give notice. No employer will wish to have a substantial claim

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appearing 'out of the blue' at the end of a contract. In J. and J.C. Abrahams v. Ancliffe [I9381 2 NZLR 420, a contractor estimated the cost of building two residential units at $30000. Several months later the employer's architect issued a specification for the work and the contractor commenced work. It became evident that the specification provided for more expensive work than that which had been allowed for in the contractor's estimate. There were also problems in the foundations which increased the amount of work done and general building costs were escalating. The employer repeatedly asked the contractor for details of the expected costs but at no time did the contractor reply. When it came to settle the account, the employer argued that the contractor was in breach of a duty to give reliable information about the costs of building before the employer became committed to completing the units at an uneconomic cost. It was held that the contractor was under a duty of care to the employer in giving its original estimate and to inform the employer as soon as it was aware that costs were going to substantially exceed the estimate. In most forms of contract, the onus is not entirely upon the contractor to keep the employer informed of increases in the contract price. In most instances, the employer relies to a great extent on his professional advisers. In varying degrees (according to the terms of the contract) there must be co-operation between the employer's professional advisers and the contractor so that any increase in the contract price can be ascertained at the earliest possible time: London Borough of Merton v. Stanley Hugh Leach Ltd (supra). Where there are no express terms, co-operation is usually implied. Most construction contracts have express provisions making it clear as to what form this co-operation should take. In the UK, contractors may normally seek remedies under the common law in addition to, or alternatively to, rights under the contract: London Borough of Merton v. Stanley Hugh Leach Ltd (supra). However, under MFA, no such alternative remedy is available since the contract excludes the contractor's rights under the general law (sub-clause 44.4). That is to say, the contractor's rights are limited to the rights set out in the contract: Limited (1998) 8 7 Strachan & Henshaw Limited v. Stein Industrie (UK) BLR 52. In some countries, it may not be possible to exclude rights under the general law.
Exclusion clauses

It should be noted that if there are no remedies for breach set out in the contract, or if a contractual remedy limits liability for breach of contract, a clause purporting to exclude liability may not be effective in the UK (an exclusion clause). In George Mitchell (Chester Hall) Ltd v. Finney Lock Seeds Ltd (1983)1-CLD-05-18, it was held that a clause which limited the

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seller's liability to the costs of cabbage seed in the event of failure of the crop could not prevent the buyer from succeeding in a claim for full damages in the event of the crop being of no commercial value. Similar provisions in construction contracts have arisen. In Miller v London County Council (1934) 151 LT 425, the contract provided that there should be no allowance in respect of money, time or otherwise, other than such extensions of time as may be given. It was held, obiter (Du Parq J), that the clause did not include delay due to extras or interference by the employer or persons for whom the employer was responsible, that is the contractor may be entitled to compensation if the employer causes delay (whatever the clause says). In some US jurisdictions 'no damages for delay' clauses are enforceable. In Hudson's Building and Engineering Contracts, eleventh edition, the author writes at page 1101: 'Clauses of this kind would appear to be prime candidates for avoidance under the English Unfair Contract Terms Act 1976 [sic, 19771 or similar legislation elsewhere.' Most civil law jurisdictionsexpressly prohibit contractual provisions which attempt to bar a remedy for breach of contract. For example, Section 3 7 3 of the Civil Code of Thailand states:
'An agreement made in advance exonerating a debtor from his own fraud or gross negligence is void.'

Under South African law, nothing prevents an employer contracting out of the consequences of his own breach. For example, extension of time clauses frequently provide for an extension of time but no monetary compensation. Where the extension of time arises from the employer's breach, such as failure to grant possession of site, the contractor would be entitled to the relevant time but nothing further.

5.6 Notice of Intention to Claim

Most contractors do give notice of their intention to claim at some time during the contract. Some avoid any indication at all of their intention to claim until after an extension of time has been made. The former may barely comply with the contract and may prejudice the contractors' entitlements to some extent. The latter will invariably be the beginning of an uphill stru&le to obtain payment of substantially less (if anything at all) than might otherwise have been possible if the contractor had given prompt notice. Notice provisions in modern construction contracts vary considerably:

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Construction Contract Claims

JCT80 - Clause 26.1.1 merely requires the contractor to make an application '. . . as soon as it has become, or should reasonably have become, apparent to him that the regular progress of the Works or of any part thereof has been or was likely to be affected (by the matters referred to] . . . .' It may be difficult to decide whether or not an application is late in all the circumstances. The only significant difference between the present clause and its predecessor (JCT63)is the addition of the words '. . . or should reasonably have become [apparent]. . . .' The clause lacks express language to bar a claim if an application is made 'late'. GC/Works/l, Edition 3 and 1998 Edition - Clause 46(3)states that 'the contract sum shall not be increased unless, (a) the Contractor, immediately upon becoming aware that the regular progress of the Works or any part of them has been or is likely to be disrupted or prolonged has given notice to the [Project Manager] specifying the circumstances causing or expected to cause that disruption or prolongation and stating that he is, or expects to be, entitled to an increase in the Contract Sum. . . .' ICE fifth edition - Clause 52(4)requires the contractor to '. . . give notice in writing of his intention [to claim] to the Engineer as soon as reasonably possible after the happening of the events giving rise to the claim.' The sixth and seventh editions introduce a twenty-eight day period after the event giving rise to the claim has arisen, but like the fifth edition, if the contractor fails to comply with the contractual provisions, the contractor is entitled to payment so far as the engineer has not been prevented from investigating the claim. 1987 FIDIC fourth edition - Clause 53 contains similar provisions to the ICE conditions. 1999 FIDIC Red, Yellow and Silver Books - Clause 20.1 requires a notice within twenty-eight days. The giving of a notice within the stipulated period is a condition precedent to the contractor's rights to claim. MF/1 - Clause 41.l(a) requires a notice within thirty days, failing which the claim is time-barred.

5.7 Particulars and Further Information to Support a Claim

If proper notice has been given pursuant to the terms of the contract, both parties are aware of the claim and further steps can be taken to deal with it. Various provisions include:
JCT8O - If requested by the architect, the contractor is required to submit appropriate information for the purposes of enabling the architect to form an opinion as to whether or not the contractor has incurred

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or is likely to incur direct loss and/or expense (clause 26.1.2) and if requested by the architect or quantity surveyor, the contractor is required to provide details of the loss and/or expense (clause 26.1.3). No time limits are specified for the architect's or quantity surveyor's requests or for the contractor's response. GC/Works/l Edition 3 and 1998 Edition - The contract sum shall not be increased unless '(b) the Contractor, as soon as reasonably practicable, and in any case within 56 days of incurring the expense, provides full details of all expenses incurred and evidence that the expenses directly result from the occurrence of one of the events. . .' (clause 46(1)). ICE fifth and sixth editions - Require the contractor to give a first interim account and details as soon as possible after giving notice, and thereafter further accounts at such intervals as the engineer may reasonably require (clause 52(4)). The seventh edition contains similar provisions (clause 53(4)). 1987 fourth edition of FIDIC is similar to the ICE conditions, save that particulars and amounts claimed are required within twenty-eight days unless otherwise agreed. 1999 FIDIC Red, Yellow and Silver Books require particulars and accounts to be submitted within forty-two days but failure to comply will not bar the claim (clause 20.1). It appears that, with the exception of GC/Works/l, there is no bar to a claim provided that notice and particulars are given within a reasonable time. MF/1 and the 1999 FIDIC Red, Yellow and Silver Books bar a claim if the initial notice is not given within the prescribed time, but failure to provide particulars and accounts on time will not be fatal to the claim. Notwithstanding the loose provisions which appear to prevail, contractors are advised to give prompt notice followed by detailed particulars backed up by adequate contemporary records. The methods of illustrating delay and disruption in support of claims for additional payment are similar to those used for illustrating claims for extensions of time.

5.8 Prolongation Claims


Qualifying delays on the critical path will usually support a claim for prolongation costs for the period of delay (if such delays are matters which give rise to additional payment). For the purposes of claims for additional payment, the term 'qualifying delay' means delay which brings with it the right to additional payment (some qualifying delays for extensions of time,

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Construction Contract Claims

such as adverse weather conditions, do not normally give rise to additional payment). Typical heads of claim arising out of prolongation of the contract period are:

Site overheads or preliminaries


It is surprising how many claims are submitted on the basis that the extra site overhead costs due to prolongation are those incurred after the original contract completion date and up to the extended (or actual) completion date. This is, of course, incorrect, but it may explain why some contractors wait until the end of the project to give notice and submit a claim. The following example illustrates how prolongation costs may be significantly understated using the above assumption. The qualifying delay on the critical path (Dl) shown in Example 1 (see Figure 5.3) has caused the completion date to be delayed by two weeks. The actual weekly costs of the contractor's general site establishment (timerelated costs) are shown in Figure 5.14. It will be seen that the weekly costs incurred during the two-week period of overrun (CD) are much lower than the weekly costs during the period of delay (CO). It is the cost incurred during the period of delay which should be the basis of the contractor's claim for prolongation costs. A claim based on the costs incurred during the period of overrun will normally be substantially less than the actual costs incurred during the period of the delay. The costs incurred during the period of delay may not reflect the true additional costs of the delay. For example, the contractor may have recruited an electrical engineer to commence on site in the ninth week to supervise the electrical installation. There may be no other site at which the engineer can be usefully employed and it may not be possible to postpone his employment. The delay may have caused the commencement of the electrical installation to be delayed by two weeks, in which case the contractor is faced with paying the salary of the engineer for two weeks (weeks nine and ten) when there is no work being done which requires the engineer's supervision. This additional cost is a direct result of the qualifying delay and ought to be recoverable. However, the cost of the engineer is not included in the costs incurred in weeks six and seven (the period of delay). In order to overcome such problems, the contractor should show the periods when every time-related resource was on site (and their costs) and when they ought to have been on site (save for the delay) - see Figure

5.15.
In practice, some qualifying delays may occur in isolation (as in the previous example) and/or numerous qualifying delays may occur over a period in which each qualifying delay overlaps with other qualifying delays. The nett result of all of the qualifying delays may cause prolongation of the

Formulation and Presentation of Claims

123

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Formulation and Presentation of Claims

125

contract period. Provided that there are no major concurrent delays by the contractor (which would be a matter of evidence) it may be reasonable to base a claim for prolongation costs on the costs shown in Figure 5.16. In the above example, the cost of the isolated delay (A) may be established using similar principles as those in the previous example. The costs arising out of the numerous continuing delays during the period (B) may be
COST

*O

= =

$ = COMPLETION CAUSED
B

ORIGINAL COMPLETION BY "A" COMPLmION CAUSED BY "8"

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MONTHLY COST

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4 MONTHS' DELAY OVER 10 MONTHS

D l

TIME

Figure 5.16 Extended preliminaries

126

Construction Contract Claims

taken as four-tenths of the total costs incurred during period (B). Some adjustments may have to be made for special circumstances such as the case of the electrical engineer used in the previous example. Alternatively, comparison between the resources which were utilised on site and the resources which ought to have been utilised (save for the delay) may give a more accurate result. In any event, it is not the comparison between the actual resources and those included in the contractor's tender which form the basis of the claim. If the contractor can show that it was reasonable and necessary to employ more weekly resources than those allowed in the tender he may be able to claim on the basis of the increased resources. However, if there was no good reason to employ additional resources, the contractor's claim may be limited to the costs of resources which were consistent with the contractor's tender assumptions. If the contractor's actual resources were less than the tender provisions, the employer would not expect to reimburse the contractor any more than the actual costs incurred.

Prolongation of individual activities


Some delays may not be on the critical path, in which case there will be no general prolongation costs. However, some time-related costs may be solely attributable to a particular activity. If delay (D2) in Example 2 (see Figure 5.4) is in respect of an activity which requires scaffolding for its total duration, then the cost of the scaffolding for the period of the qualifying delay of two weeks would be recoverable. Supervision and other plant and equipment utilised solely for the activity may also be recoverable. This is particularly valid where the activity is for work carried out by a subcontractor. The subcontractor will have a prolongation claim against the contractor and the contractor will seek reimbursement under the relevant provisions of the principal contract.

Valuation at cost or using contract rates for preliminaries

If the delay was caused solely by a variation, it could be argued that the valuation of the variation should take into account the time-related rates in the contract bills (see Variations, infra). Account would have to be taken of significant changes in actual costs when compared with the time-related rates in the contract bills. If the delay was caused by breaches of contract, such as late issuance of drawings and details, the remedy is by way of damages, thereby requiring the loss to be based on the contractor's actual costs irrespective of the contract rates. If the delay was caused by variations and breaches of contract, and the periods of delay for each cause cannot be

Formulation and Presentation of Claims

127

disentangled, it is suggested that actual costs should be used as the basis of any claim.

Head office overheads in the event of prolongation


Various formulae may be used. However, some doubt was cast upon the use of a formula in Tate & Lyle Food Distribution Ltd and Another v. Greater London Council [I98211 WLR 149. It should be noted that in this case very little evidence (if any) was put forward to establish the extent of disruption and delay and there was no evidence presented to support the percentage claimed. It is thought that where a contractor can show evidence of delay, and the extent of it, and where there is evidence to support the contention that resources were prevented from earning a contribution to overheads and the percentage to be used, then one of the recognised formulae may be used.

The Hudson formula


This formula was put forward in Hudson's Building and Engineering Contracts, tenth edition, 1970 (page 599). It uses the percentage in the contractor's tender for overheads (and profit, if applicable) as a basis for the contractor's loss of contribution to overheads (profit), as a result of delay, in the following formula: Head office overheads (profit)% Contract sum x x Period of delay 100 Contract period Hudson's formula found favour with the judge in Ellis-Don v. Parking Authority of Toronto (1978) 28 BLR 98. In this case, the judge stated that neither counsel before him had been able to think of a better approach.

Emden's formula
This formula can be found in Emden's Building Con tracts and Practice, eighth edition, Volume 2 (page N/46) by Bickford-Smith. The formula is identical to the Hudson formula, save that the head office overheads percentage (and profit) used in the formula is the actual percentage based on the contractor's accounts and is arrived at as follows: Head office overheads (profit)% = Total overhead cost (Profit) Total turnover

Emden's formula was approved in the case of Whittall Builders Company Ltd v. Chester-le-Street District Council (1985) unreported. The judge clearly stated the principles behind Emden's formula as follows:

128

Construction Contract Claims

'What has to be calculated here is the contribution to off-site overheads and profit which the contractor might reasonably have expected to earn with these resources if not deprived of them. The percentage to be taken for overheads and profits for this purpose is not therefore the percentage allowed by the contractor in compiling the price for this particular contract, which may have been larger or smaller than his usual percentage, and may not have been realised. It is not that percentage (i.e. the tendered percentage)that one has to take for this purpose but the average percentage earned by the contractor on his turnover as shown by the contractor's accounts.' In J.E Finnegan v. Sheffield City Council (1989)43 BLR 124, the judge endorsed Emden's formula as follows:
'I infinitely prefer the Hudson Formula which in my judgement is the right one to apply in this case, that is to say, overhead and profit percentage based upon fair annual average, multiplied by the contracts sum and the period of delay in weeks, divided by the contract period.'

Note - The judge referred to the Hudson formula, when in fact it ought to have been Emden's formula. Eichleay's formula A similar formula to Emden's formula was developed by Eichleay in the United States in The Appeal of Eichleay Corporation, ASBCA 5183, 60-2 BCA (CCH) 2 6 8 8 (1960) and this has found approval in the US courts: Capital Electric Company v. United States (infra). This formula uses the actual overheads (and profit) in a similar manner to Emden, but the total value of all certificates (the final contract price, including remeasurement and variations) is inserted in lieu of the contract sum. The logic behind the use of a formula is shown in Figure 5.17. Line a-a represents the contractor's anticipated or actual head office overheads b represents the contractor's (depending upon the formula used). Line banticipated turnover on all projects. Profile c-c represents the contractor's anticipated turnover on the present project. Profile d-d represents the contractor's actual turnover on the present (delayed) project. Profile e-e represents the contractor's actual turnover on all projects. It will be seen that the delay has caused the actual turnover on the project (d-d) in the early months of the project to be considerably less than would have been the case if there had been no delay. Accordingly, the total actual turnover (e-e) has fallen below anticipated level (b-b). During the latter months of the project, the actual turnover on the present project (d-d) continues during the period of prolongation (making up for the shortfall in the earlier months). In theory, the actual turnover on all projects during the

Formulation and Presentation of Claims


SHORTFALL IN TURNOVER CAUSED BY DELAY DISPLACED TURNWER CAUSED BY DELAY
I,LI,

129

YEAR 1

YEAR2

YEAR 3

Figure 5.17 Overheads and turnover

period of prolongation should increase (see x-x) because the turnover on the delayed project in the latter months was not included in the planned turnover for the same period. However, this increase can only be achieved if the resources on the present delayed project can be released to generate more work on a new project. Unless the contractor can take on more resources, it will have to forego new work which it could otherwise have taken. Therefore, as a result of the shortfall in turnover during the delay, the contractor is unable to recover sufficient overheads from the delayed project to make the requisite contribution to its total overheads. In St Modwen Development Ltd v. Bowmer and Kirkland [I996138 BLISS 4 the arbitrator awarded head office overheads based upon a formula method of recovery. The employer appealed, not with respect to the formula itself, but on the basis that no evidence had been presented to prove that the contractor was unable to use his head office resources elsewhere during the period of prolongation to generate overheads and profit as a result of the delay. The Court appears to have been influenced by Hudson's Building and Engineering Contracts, tenth edition: 'However, it is vital to appreciate that both these formulae (Hudson and f high economic activity in Eichleay)were evolved during the 1960's at a time o construction. Both assume the existence o f a favourable market where an adequate profit and fixed overhead percentage will be available to be earned during

130

Construction Contract Claims

the delay period. Both also very importantly, assume an element of constraint that is to say that the contractor's resources (principally of working capital and key personnel, it is suggested) will be limited or stretched, so that he will be unable to take on work elsewhere.' The Court rejected the appeal on the grounds that both expert and evidence of fact had been heard on which the arbitrator was entitled to base his award. In Amec Building Ltd v. Cadmus lnvestment Co Ltd [I9971 51 ConLR 105, Mr Recorder Kallipetis QC had this to say:
'. . . it is for the plaintiff to demonstrate that he has suffered the loss he is seeking to recover. . . [and]. . . this proof must include the keeping of some form of record that the time was excessive and their attention was diverted in such a way that loss was incurred . . . [and he must]. . . place some evidence before the Court that there was other work available which, but for the delay, he would have secured . . . thus he is able to demonstrate that he would have recouped his overheads from those other contracts and, thus, is entitled to an extra payment in respect of any delay period awarded in the instant contract.'

It follows that in order to succeed in delay claims involving loss of overheads (and profit) using a formula, the contractor must be able to show:

(1) that the anticipated turnover was adversely affected by the delayed
project, and

(2) that he was prevented from earning a contribution to overheads (and f the delay (see possible methods under 'profit', profit) as a result o
infra). The various formulae used will enable the contractor to calculate the loss of contribution to its head office overheads as a result of the delay. As the contractor has been unable to release his resources to earn the contribution to overheads on another project, he must earn a similar contribution by making a claim on the delayed project. It will not normally be necessary for the contractor to submit a graphical representation of its turnover and overheads in the above manner as the use of formulae are well known. Where there is resistance to the use of a formula, illustrations using actual data may be persuasive. However, when a project goes seriously wrong, the use of a formula may produce a substantial underestimate of the costs of prolongation. A contractor may have to increase the time spent by its managerial and supervisory staff of its head office to cope with the particular problems of the project. Numerous variations and other delaying matters may place greater demands on managerial staff including purchasing, planning, costing, quantity surveying and administration staff. It may be necessary to place a director, in a full time role, to deal with the overall management of the project (where none would have been necessary if the project had gone according to plan).

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131

Before leaving overheads, it is worthwhile considering the different circumstances between the Tate & Lyle case and those cases where a formula was accepted as a fair means of calculating overheads to be reimbursed. In the Tate & Lyle case, the court was considering the cost of managerial time spent on work done to remedy an actionable wrong. It had nothing to do with a delayed project. In the cases which approved the use of a formula, the courts were concerned not only with the cost of managing a project which was delayed, but they were also considering the loss of productivity (lossof contribution)of the contractor's overhead resources. That is to say, because of the delay, the managerial time could not be used to earn the required contribution to overheads on the delayed project, nor could it be used to earn the required contribution from other existing projects (as this would mean recovering additional expense from other employers who were not in default) or additional projects (which could not be undertaken on account of key resources being retained on the delayed project). With the greatest respect, the circumstances of the Tate & Lyle case are sufficiently distinguishable from most cases involving delay and there appears to be strong grounds to resist any suggestion that this case places doubt on the use of an appropriate formula (subject, of course, to reasonable evidence and the circumstances applicable to the delayed project).

Profit
The principles behind a claim for loss of profit arising out of a delayed contract are similar to those applicable to a claim for overheads. It should be noted that some contractual provisions only provide for recovery of additional cost or expense. Where that is the case, a claim for loss of profit is not permissible under the terms of the contract. However, unless there are clear terms to limit the contractor's remedy to those contained in the contract (that is, excluding a common law claim), the contractor may be able to make a claim for loss of profit under the general law. The JCT forms of contract permit reimbursement of loss of profit. Having established that there is a contractual, or common law, right to recover profit lost as a result of delay, what level of profit is reasonable and what standard of evidence to support a claim for loss of profit is required? It is an impossible task to show that, save for the delay, the contractor would have been successful when tendering for a particular project (which he declined, or submitted a deliberately high bid) and that, having been awarded the contract for the project, he would have made a profit on it. If that was the appropriate test, no claim for loss of profit would succeed. However, it may be necessary for the contractor to show some evidence that he was given the opportunity to tender for other projects and that he could not reasonably take advantage of these opportunities because of the

132

Construction Contract Claims

fact that his resources were retained on the delayed project. In formulating a claim for loss of profit, the contractor would be advised to keep a record of the following: all tenders submitted and awarded (so that a success ratio can be established); all projects for which the contractor was irivited to tender, but which were declined or a deliberately high tender submitted (this may cover a period of several months before the present delayed project has overrun, since decisions to decline new work may have to be taken in advance as soon as the overrun is anticipated). The former is relatively easy to illustrate. The latter may need some analysis to establish that any bids were deliberately high. This should be possible by a bid ratio technique (a system of recording the nett cost included in each tender as a percentage, or factor, of the successful tender).

Example
Nett cost for constructing a project = C , say 100000 Successful tender sum = T,say El05000 Bid Ratio = T/C = E 105000/100000= 1.05

Any tenders with a bid ratio above an established competitive bid ratio would qualify for deliberately high pricing. This technique may require statistical analysis and adjustment for 'rogue' bids and errors. Other evidence, such as proximity of the submitted tender to the competitive range of other tenders, may suffice. Further, a general analysis of construction activity during the period of overrun may be acceptable. Limitations on the contractor's bonding facility may also be a factor. If the contractor can demonstrate that, on the balance of probability, he would have been able to obtain other contracts during the period of overrun, that alone ought to be sufficient to establish the claim in principle. In a United States case, the employer, the United States Government, contended that the contractor was required to prove that he was capable of taking on the extra work which he alleged was lost as a result of the government's delay and that he could have made a profit on it. It was held that the contractor had produced unrebutted evidence that he could not have taken on any large construction jobs during the various delay periods owing to the uncertainty of delays and limitation on his bonding capacity. The mere showing of these facts is sufficient to transfer to the government the burden of proof that the contractor suffered no loss or should have suffered no loss: Capital Electric Company v. United States (Appeal No. 88/965, 7.2.84) 729 F.2d 743 (1984).

Formulation and Presentation of Claims

133

A very simple approach was adopted in Whittall Builders Company Ltd v. Chester-le-Street District Council (supra). The judge was satisfied that there was sufficient activity in the construction industry at the relevant time that it was reasonable to assume that Whittall would have been able to obtain other profitable work. Hudson, Emden or Eichleayt Percentage to be used: period for calculating the relevant percentage
A great deal will depend on the nature of the delay. If the sole reason for a particular delay is extra, or additional work, contemplated by the variation clause in the contract, it may be appropriate to use Hudson's formula (see Variations, infra). If the reason for delay is breach of contract, or if periods of delay caused by variations cannot be disentangled from periods of delay caused by breaches of contract, it is suggested that the remedy is by way of damages, in which case Emden's formula is appropriate. At tender stage, the contractor will be looking at historical data (based on several years' expenditure on overheads and the recorded turnover for the same periods). Some adjustment may be made for anticipated changes in turnover in the future overheads. In any event, the percentage for overheads in the contractor's tender should be a realistic estimate of the probable apportionment of overheads in the rates for the work in the contract. The level of profit in the tender may have no relationship whatsoever to historical data, but it will depend on the profit (or loss) which the contractor anticipates should be allowed, having regard to external market factors and operating turnover requirements. Where a positive profit has been allowed in the tender, and where there has been no substantial change in the market, the Hudson formula may be fair to both parties where delay is caused by variations. Where a negative profit has been allowed in the tender, adjustment to the percentage may be considered, particularly if the delay is out of proportion to the value of additional work and/or there had been an improvement in the market (part Hudson, part Emden). Where the delay was not unreasonable, having regard to the value of variations, adjustment for overheads only (ignoring the negative profit percentage) may be the applicable solution. This would depend on the terms of the contract and the circumstances of the case. Where a formula is used, there may be some difficulty in deciding upon the appropriate period to be taken for establishing the turnover and overheads and profit in the formula (see Figure 5.18). Period a (prior to commencement with possible adjustment for anticipated changes) represents the period used for Hudson's formula. Period b (the original contract period) represents the period used for

134

Construction Contract Claims

Formulation and Presentation of Claims

135

Eichleay's formula (see Construction Contracts: Principles and Policies in Tort and Contract by I.N. Duncan Wallace at page 128). However, period c (the extended contract period) would appear to be equally appropriate. Period d (prior to commencement of the qualifying delay) would appear to be the most appropriate for Emden's formula, since it is the most contemporary period before the percentage is distorted by the qualifying delay (which would normally reduce turnover and increase the percentage for overheads). Period e (the period of the qualifying delay) would normally be too short for useful figures to be obtained and it would suffer from greater distortion than period d. Period f (from commencement of the qualifying delay until completion) may be appropriate in certain circumstances but may be subject to distortion. Period g (period of overrun) is most suitable for the loss of profit element (since this is the period in which the profit ought to have been earned on a new project). However, it is normally too short. Profit from the nearest year's accounts may be appropriate as a basis of assessment. Contractors may seek to use the period which gives the most favourable result. In practice, the nearest accounting periods which include period d are likely to be the appropriate periods for calculating the percentage for overheads, whilst the nearest accounting periods which include period e are likely to be the appropriate periods for calculating loss of profit. However, since the use of a formula does not purport to produce an accurate result, it is suggested that period c should be appropriate (for overheads and profit) in most cases. If claims are to be settled prior to such information being available, the most recent accounting periods may have to suffice. The accounting periods will not usually coincide with the actual period, in which case an adjustment may be made. For example, assuming that c has been agreed as the appropriate period, the percentage overheads and profit may be calculated as follows: Year 1 Turnover Year 2 Year 3 Total

El 800000
x 8/12

2000000
x 12/12

2400000
x 4/12

El 200000
Overheads and profit
% overheads

2 000000

240000 x 8/12 160000 13.33%

300000
x 12/12

300000 15.00%

800000 300000 x 4/12 100000 12.50%

4000000 560000 14.00%

and profit

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Construction Contract Claims

A more accurate assessment may be made by graphical means or by using monthly or quarterly figures. One pitfall when using actual audited accounts is that they may not include any (or the correct) provision in them for the recovery to be realised by payment of the claim on the delayed contract (and possibly other contracts). Provisions in previous years' accounts may have been under or overestimated and amounts received in the years used for calculation may distort the real figures. Adjustment may be possible if good management accounts are kept. However, unless there are unusual circumstances, it is suggested that these factors will be self-compensating in the long term. It has been said that a formula produces a result which includes overheads and profit on the overheads and profit included in the contract sum. However, this is not the case if the overheads and profit are expressed as a percentage of the turnover income (and not annual cost), as can be seen from the following example: Annual cost of all projects Overheads and profit Annual turnover Overheads and profit
= 60000 = 5000 = 65000 = 8.333% of

cost or 7.692% of turnover = 345000 Contract sum of delayed project Less overheads and profit (7.692%)= 26 537 = 318463 Cost of delayed project = 300 days Original contract period Period of delay = 70 days

Overheads and profit during period of delay (using contract sum and overheads and profit as percentage of turnover income in the formula)

7.692 -X 100

345000 x 70 days = f 6192 300 days

Overheads and profit during period of delay (using contract cost and overheads and profit as percentage of annual cost in the formula)

-- 8.333 100

318463 x 70 days = f 6192 300 days

This example illustrates that there is no mathematical problem when the percentage for overheads and profit included in the tender is the same as the average percentage for overheads and profit on all projects. Adjustment may be necessary if different percentages are evident (as will almost certainly be the case using Emden's formula). If this is so, it is a simple matter to convert the percentages so that they are expressed as a percentage of cost, in which case the formula becomes:

Formulation and Presentation of Claims

137

Overheads % Contract cost x x Period of delay Contract period 100 In most cases the traditional use of the formula will be sufficiently accurate. Only where there is a significant difference between average profit and the profit on the delayed project will any adjustment be necessary. A formula may also produce a suspect result (over-recovery)if the delay being considered is at the end of a project, when most of the work has been done and few key resources are retained on site. The opposite (underrecovery) may occur when the delay takes place during the peak months and the maximum resources are on site. All of the resources should earn a contribution to the overheads and this can be catered for by sensible adjustments to the formula. For example, the following factor may be suitable in some circumstances:

F = Value of work done per day during period of delay on contract

Average value of work done per day during total contract period

Amount of overheads (and profit) = Normal formula result x F An alternative would be to examine total costs of all projects, the cost of the delayed project and actual overheads during the period of delay (similar to Eichleay). This could be ascertained by monthly records. For an example (see also Figure 5.19): Total cost of all projects, March and April = 160000 Total head office overheads, March and April = 12000 Cost of delayed project, March and April = 30000 12000 x 100 = 7.50% Overheads percentage = 160000 Overheads allocated to delayed project during March and April = 30000 x 7.5% = 2250 45 Overheads during 4 5 days' delay = 2250 x -= 1660 61 Head office overheads were considered in the case of Property and Land Contractors Ltd v. Alfred McAIpine Homes North Ltd (1996) 76 BLR 59. JCT80 conditions applied with some amendments. The contractor was instructed to suspend the works which led to a claim being submitted in the alternative for head office overheads. The matter was referred to arbitration. The claim was based upon the application of Emden's formula. The contractor usually undertook only one major project at any one time. A second project at Tollerton was planned and it was agreed that the contractor intended to carry out this development for its parent company after

A = QUALIFYING DELAY OF 45 DAYS

B = DELAY TO COMPLETION
ORIGINAL CONTRACT PERIOD PROGRESS

Figure 5.19 Overheads and profit based on monthly accounts during period o f delay

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139

completing the current project (thesubject of the claim). It was claimed that, due to the postponement, completion of the work was delayed from 20 May 1990 until 25 November 1990, and that the delay prevented the contractor from carrying out the second project at Tollerton. The contractor claimed that, due to the overrun, he lost an opportunity of carrying out the second project which would have contributed to overheads. Emden's formula was employed as a means of calculating the head officeoverheads. This argument was rejected by the arbitrator, who was not convinced that the suspension resulted in the contractor being unable to work at the second project or elsewhere. The contractor's alternative claim was for the recovery of head office overheads actually expended. The arbitrator was satisfied that the head office costs were related to the works for the delay period. The contractor's method of calculation was:
'to extract from the company's account the overhead costs excluding fixed costs not related specifically to progress on the site (i.e. directors' remuneration, telephone, staff salaries, general administration, private pension plan, rent, rates, light, heat and cleaning and insurance to express such annual costs as weekly averages for both 1990 and 1991, and multiply the resulting weekly averages by the period of overrun in each year and thus produce a figure referred to as
'C').'

The total overheads for the period of delay and to be allocated between the delayed project and other work being undertaken at the same time was calculated as follows:
Value of work at Shipton x Total overheads (C) = Amount claimed Total value of work

The above formula contains a variant of the Eichleay formula and the method described using Figure 5.19. The employer argued that the arbitrator had erred in law because he had awarded costs which would have been incurred by the contractor in any event and could not therefore be classed as direct loss and expense. The court found in favour of the contractor with the following observations:
'All these observations like those of Lord Lloyd in Ruxley, of Forbes J in Tote and Lyle, and of Sir Anthony May in Keating all suppose, either expressly or implicitly, that there may be some loss as a result of the event complained of, so that in the case of delay to the completion of a construction contract there will be some "under recovery" towards the cost of fixed overheads as a result of the reduced volume of work occasioned by the delay, but this state of affairs must of course be established as a matter of fact. If the contractors overall business is not diminishing during the period of delay, so that where for example,

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Construction Contract Claims

as a result o f an increase in the volume o f work on the contract in question arising from variation etc., or for other reasons, there will be a commensurate contribution towards the overheads which offsets any supposed loss, or if, as a result o f other work, there is no reduction in overall turnover so that the cost o f the fked overheads continues to be met from other sources, there will be no loss attributable to the delay.'

It will be seen from Figure 5.17 (supra) that by comparing anticipated turnover (b-b) with actual turnover (e-e) on a delayed project, the volume of work ought to fall below the anticipated turnover. That is precisely what the court was saying in the above observation. Problems occur when the cause of delay is a suspension order which applies to the whole, or a substantial part of the works. It is self-evident that the above method would produce a result of zero if all of the works were suspended and no costs were allocated to the project. Nevertheless, fixed head office resources would have to be covered by a contribution from the delayed project. It is possible that no management time would in fact be spent on the delayed project. However, this does not mean that more effective management time is spent on other projects. Management resources would not be expended on the delayed project (so, in theory, there would be no cost which could be allocated to the delayed projects) thereby making it impossible to justify a claim based on costs as required in Tate & Lyle v. GLC (supra). It must be reasonable to argue that the loss of contribution to overheads should be recovered from the delayed project on the grounds that the contractor's head office resources could not earn the shortfall in contribution on any other project. Numerous variations to the recognised formulae may be appropriate. In Finnegan v. Shefield City Council (supra), the contractor argued (unsuccessfully) that the percentage to be used in the formula should be based on a notional contract and the contractor's direct labour cost (excluding su contractors). In summary, it is suggested that, unless there are compelling reasons to modify one of the formulae, no adjustment should be necessary when calculating the loss of contribution to overheads (and profit). In most cases, Emden's formula, or Eichleay's formula, are preferable to Hudson's formula.

Adjustment for overheads and profit in variations


Many practitioners argue that any recovery of overheads and profit in variations should be deducted from the overheads and profit included in a claim for prolongation. This may be the case in the event of all of the variations being the cause of all of the period of delay. It may not be the case where some (or all) of the variations can be executed within the contract period

Formulation and Presentation of Claims

141

or they do not cause delay. (See also The Presentation and Settlement of Contractors' Claims by Geoffrey Trickey at pages 127 and 128.) For example, if variations were executed during a period when there was no delay, the contractor would be paid for them at rates which would include additional overheads and profit. If the contract was to complete on time, no adjustment would be made (but see Variations, infra). Therefore, if (after completion of all varied work) there should be delay for another reason (such as suspension),the overheads and profit recovered for this delay (using a formula) would be the appropriate measure of damages for the period of suspension and should stand on its own without adjustment for the overheads and profit recovered in the variations. Similarly, if variations are executed concurrently with other recoverable delays, if it can be shown that they could have been incorporated within the contractor's programme (in the event that the other recoverable delays did not occur) then they may also be discounted and no adjustment made. In short, any variations which do not cause the delay which is the subject of the prolongation claim may be ignored when making any adjustment for overheads and profit. Conversely, if a variation is the cause of a claim for prolongation, an adjustment should be made. However, if Emden's formula has been used to calculate the overheads and profit during the period of prolongation, the percentage to be used in the adjustment may not be the same as that used in the formula. It should be that percentage which was included in the contractor's tender.

Adjustment for non-recoverable delays


Some delays, such as exceptionally adverse weather conditions, do not qualify for additional payment. Where such delays occur in isolation, it is a simple matter to ignore the period of delay in any calculation of prolongation costs (see Figure 5.20). Where such delays occur in parallel with recoverable delays, reimbursement will depend on the particular circumstances of the case (see Concurrent delays, infra). It should be remembered that where a contractor has been forced into a period of adverse weather by a variation, or other qualifying recoverable delay, it may be entitled to reimbursement (Fairweather v. London Borough of Wandsworth, supra). In these circumstances the adverse weather conditions need not be exceptional in order to qualify for an extension of time and additional payment.

Concurrent delays
A single cause of delay often presents no problem when dealing with prolongation claims. However, in practice, many delays occur at the same time.

142

Construction Contract Claims

Formulation and Presentation of Claims

143

' 7

Previous examples have illustrated the difficulties which arise when considering extensions of time in such circumstances. The situation is far more complicated when deciding whether, or not, the contractor is entitled to additional payment. There are no easy solutions to the wide variety of practical problems which arise when more than one cause of delay is affecting the progress of the works at the same time. Some delays will qualify for additional payment, whilst others, such as adverse weather conditions (which may qualify for an extension of time) and culpable delay by the contractor, will not normally qualify for additional payment. Contractors are unlikely to offer any concession for concurrent delays when putting forward a claim for prolongation. They cannot be blamed for that (see Negotiation - Chapter 8). The following notes assume that the author of the claim is impartial and is attempting to establish what is reasonable reimbursement in the circumstances. The law applicable to the rights of the parties to damages in the event of concurrent delay is complex. In Keating on Building Contracts, fifth edition (pages 193-197), the author discusses the various options which may apply, taking the view that whilst the law appears to be unclear, in the majority of cases, the dominant cause of delay should be the deciding factor. This has been established in cases of exception clauses used in policies of insurance: Leyland Shipping Company v. Norwich Union Fire Insurance Society [I9181 AC 350. It does not appear to be applicable to contracts generally. However, this may sometimes be the case where the facts are clear and the interaction of the various delays are relatively simple to determine. It is submitted that the 'dominant delay' principle is generally inappropriate for the majority of construction delay claims (with some exceptions). This appears to be supported by the judgement in the Fairweather case. If the responsibility for delays can be divided according to the circumstances, apportionment may be appropriate. If it is impossible to disentangle the causes and effects of the delays, the claim may fail entirely: Government of Ceylon v. Chandris [I9651 3 All ER 48. If the competing causes of delay are in parallel, only nominal damages may be appropriate: Carslogie S.S. Co. v. Norwegian Government [I9521 AC 292. The following guidelines may be applicable in circumstances where more than one delay is affecting the progress of the works during the same period of time: where the non-recoverable delay is on the critical path and the qualifying recoverable delay is non-critical, no reimbursement should be permitted; where the non-recoverable delay is non-critical and the qualifying recoverable delay is on the critical path, reimbursement should normally be permitted;

2
2
3

@
@ )
a

FIRST CRITICAL PATH SECOND CRITICAL PATH qualifying delay

s 3
F S
J

b = non-qualifying delay of lesser duratlon on same critical path


c

C)

non-qualifying delay of equal or lesser duratlon on parallel critical path

?if
cn

3-

d = delay to completion

Figure 5.21 Concurrent delay; qualifying delay occurring first

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145

where both (qualifying and nonqualifying) delays are critical, then so far as they are of the same duration, no reimbursement should normally be permitted; where a qualifying recoverable delay occurs first, followed by a nonqualifying delay (both delays being on the same or parallel critical paths - see Figure 5.21), there is an argument to support the view that reimbursement should be permitted; where a non-recoverable delay occurs first, followed by a qualifying recoverable delay (both delays being on the same or parallel critical paths), there are grounds to argue that no reimbursement should be permitted. There may be circumstances which merit a departure from the above guidelines. For example, the greater part of the contractor's management and supervisory staff may have been retained on site to deal with a complex f lesser duration than a concurrent variation which has caused a delay o period of exceptionally inclement weather. If it can be shown that the contractor's staff could have been released at an earlier date (had there been no variation), then reimbursement may be permitted notwithstanding the concurrent non-recoverable delay. The above guidelines should not affect the contractor's rights to recover time-related costs which are exclusively in connection with an activity which has been delayed by the employer (such as the cost of supervisory staff wholly employed on the section of work which has been delayed by the employer).

Delayed release o f retention


When a project is delayed, the certificates which release the retention held f the necessary by the employer are also delayed. The delay in issuance o certificates will give rise to a claim for finance charges on the retentions for the period of delay. Allowance will have to be made for non-recoverable delays.

5.9 Disruption and Loss of Productivity


The term 'disruption' when used in the context of construction and engineering claims includes any one or a number of the following considerations: delays to individual activities (whether, or not, such delay caused completion of the works to be delayed), thereby causing manpower to be retained over a longer period to execute the same amount of work;

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Construction Contract Claims

changed sequence of working arising out of delays to individual activities, thereby causing the effective use of manpower to be interrupted and disturbed so that no production takes place during such interruption and lower production occurs in the initial stages of the activity to which the manpower has redeployed; interruption and disturbance to other secondary activities (not directly affected by the cause of disruption) caused by delay to the affected activities or changed sequence of working so that lower production is achieved in carrying out these secondary activities; idle (or nonproductive)time caused by rescheduling and out-of-sequence working, thereby adversely affecting the progress of the work; congestion in sections of the work to which rescheduled manpower is transferred, thereby affecting productivity and progress of the work; general loss of productivity due to work being done piecemeal. The following authorities and references refer to disruption under a number of descriptions: (a) 'Many serious breaches or substantial variations may involve neither delay nor disturbance beyond their immediate direct cost. They may not be on the critical path of progress, so overall delay will not be involved. They may take place at a time when prompt action and direct expenditure by the contractor can avoid any disturbance of the remaining work. Nevertheless, even where overall delay is not involved, there will often be serious disturbance of the contractor's internal programme. This is particularly true of information or access breaches. Even in the absence of immediate direct costs, labour cannot be suddenly hired or fired, specific tasks cannot be suddenly stopped and restarted, and labour and plant cannot be moved backwards and forwards across the site, without an often substantial general loss of productivity. This will express itself, of course, in a generally heavier labour and plant expenditure, relative to actual work done. This may result from the particular plant and labour force being engaged for a longer period, or the recruitment of additional plant and labour to avoid or recover delay. Theoretically, in reaching a decision as to which course to follow, a contractor able to pre-plan will weigh the effect on his extended time-related costs if there is to be a delay, against the possibly marginal economic advantage of increasing his plant or labour force - it may be reasonably assumed that he will have endeavoured to optimise productivity when planning his original plant and labour force, so that an increase in it may not be economical in terms of production.' [Construction Contracts: Principles and Policies in Tort and Contract by I.N.Duncan Wallace (p. 124, para. 8-23)]

Formulation and Presentation of Claims (b) 'Loss of productivity or uneconomic working

147

This is a head of claim sometimes made where there has been delay in completion or disturbance of the contractor's regular and economic progress even though, on occasions, the ultimate delay in completion is small or does not occur.' [Keating on Building Contracts, fifth edition by Sir Anthony May (P. 21211 (c) 'A claim for the effect of an event upon the contract works themselves which does not necessarily involve a delay in completion of the works. This is a disruption claim and can arise even where the works are completed within the contract period.' [Problems in Construction Claims by Vincent Powell-Smith (p. 3)] (d) 'Delay and disruption can lead to increased expenditure on labour and plant in two ways. It may be necessary to employ additional labour and plant or the existing labour and plant may stand idle or be underemployed. The latter is sometimes referred to as "loss of productivity". ' [Emphasis added] [Building Contract Claims, second edition by Vincent Powell-Smith and John Sims (p. 139) (p. 161 in the third edition)] The principal elements accompanying and/or causing disruption are: Rescheduling and out-of-sequence working. Causes of disruption which interrupt individual activities (such as late or incomplete information, variations or change orders, design errors and other matters for which the employer is responsible) may sometimes be absorbed within the original programme or schedule of work. This is particularly the case where the affected activities are not on the critical path and/or the number of alternative 'work-faces' is sufficient to facilitate relocation of resources from the affected activity to a location where there is other work capable of being done (by the relocated resources) without affecting other trades or the overall programme or schedule due to the extensive numbers of alternative work-faces becoming available. However, as the installations become progressively completed, the number of alternative work-faces decrease, bringing about an increase in lost or idle time, additional supervision and consequential effects on other trades, disciplines and activities. As the available alternative work-faces decrease and the consequential effects on other trades, disciplines and activities intensify, the result may be to cause loss of productivity and actual delay to the programme or schedule of work, whether or not the original causes of disruption are on the critical path.

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Construction Contract Claims

Loss of productivity The authorities and references cited above confirm the view that disruption or dislocation invariably brings about a loss of output or loss of productivity. A claim for loss of productivity will usually arise out of: the employer's default or breach of contract; matters expressly permitted under the contract (such as variations or change orders and suspension orders); matters for which the employer has given an indemnity or has agreed to reimburse the contractor therefor. 'Loss of productivity' is recognised as a valid head of claim:
'While this [loss of productivity] is clearly an allowable head of claim, it can be difficult if not impossible to establish the amount of the actual additional expenditure involved.' [Building Contract Claims, second edition by Vincent Powell-Smith and John Sims (p. 139) (p. 161 in the third edition)]

In order to illustrate the effects of disruption and/or loss of productivity it may be necessary to establish that a planned orderly timing and sequence of events was affected by causes within the employer's control to the extent that the contractor was prevented from carrying out the work in the planned orderly timing and sequence. The planned sequence may not be that which was envisaged at tender stage. The project manager may have planned an alternative sequence and this should be the basis of comparison. It may not be necessary to show that there was delay to any activity or that the completion date has been delayed. Much has been written about the contractor's rights to additional payment in the event of delay when the contractor's programme shows early completion: Glenlion v. Guinness Trust (supra). Whilst this issue was not decided, the judge referred to two authorities of importance:
'In regard to claims based on delay, litigious contractors frequently supplied to architects or engineers at an early stage in the work highly optimistic programmes showing completion a considerable time ahead o f the contract date. These documents are then used (a) to justify allegations that the information or possession has been supplied late and (b)to increase the alleged period of delay, or to make a delay claim possible where the contract completion date has not in the event been extended.' [Hudson's Building and Engineering Contracts, tenth edition, p. 6031 and

'. . . Sometimes contractors at the commencement of or early in the course of a contract prepare and submit to the architect a programme of works showing

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completion at a date materially before the contract date. The architect approves the programme. I t is then argued that the contractor has a claim for damages for failure by the architects to issue instructions at times necessary to comply with the programme. Whilst every case must depend upon the particular express terms and circumstances, it is thought that the contractors' argument is bad; . . .' [Emphasis added] [Keating on Building Contracts, fourth edition, First Supplement]

Example
If, for example, the delay of five weeks on bar D (see Figure 5.5)was caused by a suspension order issued immediately upon commencement of the works, the contractor would be entitled to claim the non-productive costs of its site establishment and overheads during the period of delay. These costs would not have been incurred (or they would have been productive costs) if the suspension order had not been issued. Similarly, if the delay of four weeks on bar E (see Figure 5.5) was caused by a variation, the timerelated costs and any disruptive element of cost would be recoverable as part of the value of the variation. These arguments are valid whether, or not, the delays caused the completion date to be extended. These problems appear to have been contemplated by the judge at page 1 0 4 of the report: 'It is unclear how the variation provisions would have applied.' Whilst the majority of costs claimed are likely to be time-related, they are claimed for disruption rather than prolongation. The Glenlion case does not appear to affect the contractor's rights to claim in the appropriate circumstances. The Glenlion case prompted numerous articles and exchanges of correspondence in the technical and legal press on the subject of delays when the contractor's programme showed early completion. There appeared to be two equal schools of thought, the first supporting the judgement (some adamant that it was also the death of similar claims for recovery of additional costs due to the delay) and the second being critical of the decision, especially with regard to the recovery of additional costs (which Glenlion did not decide). The following commentary may put the debate to rest. In Oucon (Pty) Ltd v. Administrator Natal 1991 (4)SA 71, the contract provided for completion of the work within fifteen months. The contractor, however, contemplated completion of work within eleven months. The contractor had calculated its tender on that basis and prepared a progress chart showing completion in eleven months. The progress chart was approved by the employer as required in terms of the Bills of Quantities. Completion of the work was delayed by the employer through the issue of variations. Despite the

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Construction Contract Claims

delay, the work was completed within the fifteen months but not within the eleven months contemplated by the contractor (see Figure 5.6 - supra). The contractor's prolongation claim for recovery of additional expense or loss caused by the delay (additional P & Gs) was rejected by the court. It was held that acceptance by the employer of the progress chart did not impose any obligations on the employer and the contractor was not entitled to claim for delays. The contract provided for completion within fifteen months and, had the contract taken the full fifteen months (assuming no variations had been issued),it must be presumed that the contractor had included all the expenses associated with the period. The arguments put forward on behalf of Ovcon for a prolongation claim appeared to miss the point entirely. The contract had not been prolonged as Ovcon had completed within the contract period. Based on the law in South Africa (and in the UK), the decision appears to be at odds with the principles of assessing damages for breach of contract:
'The sufferer by such breach [of contract] should be placed in the position he would have occupied had the contract been performed, so far as that can be done by the payment of money and without due hardship to the defaulting party.' [Victoria Falls and Transvaal Power Co Ltd v. Consolidated Langlaagke Mines Ltd (1915)AD at p. 221

The presentation of Ovcon's case by way of a general prolongation claim possibly took the judge's eye off the ball with respect to the cause and effect of the delays which occurred. For example, if the employer failed to give possession of the site for several weeks, the contractor would have incurred loss and expense which it would not otherwise have incurred save for the failure to give possession. The payment of loss and expense to Ovcon would only have put Ovcon back in the position in which it would have been had there been no default by the employer. If each delay had been looked at individually in this way, perhaps the force of the argument would have persuaded the court to adopt a different view. Further, although reference was made to various authorities, counsel for Ovcon informed the judge that no case law on the topics could be found. However, various cases and authorities addressed this topic, and reference to those cases and authorities may have assisted in obtaining a decision which would be consistent with the principles for assessing damages for breach of contract (supra). Firstly, the English case of Glenlion Construction Ltd v. The Guinness Trust (supra) only dealt with extensions of time and it is no surprise (in that case) it was decided that extensions of time could only be granted if the delay caused the completion date to be delayed. That is to say, the extension should not be granted merely because the planned (earlier) date had been delayed. However, the Glenlion case did not address the matter of

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loss and/or expense caused by the delay. The judge did venture to say: 'It is unclear how the variation provisions would have applied,' In both the Ovcon case and the Glenlion case, reference was made to similar authorities and, in addition, to Keating on Building Contracts. In the edition referred to in these cases (the Supplement to the fourth edition), Keating states:
'Whilst every case must depend upon the particular express terms and circumstances, it is thought that, upon the facts set out [in Wells v. Army and Nauy Co-operative Society (1902) 86 LT 7641 the contractor's argument is bad; and that is the case even though the contractor is required to complete "on or before" the contract date . . . There is no authority on this point.'

However, in the fifth and sixth editions of Keating (which post-date both cases), the author goes on to say:
'Where the programme date is earlier than the Date for Completion stated in the Contract, it may be that some direct loss and/or expense may be recoverable on the grounds of disruption. However, provided that the contractor can still complete within the Contract Period, he cannot recover prolongation costs.' [Glenlion Construction Ltd v. The Guinness Trust]

It is important, therefore, to distinguish between prolongation costs (costs of overrun beyond the contract completion date) and disruption costs (costs arising as a result of delays and/or disruption caused by the employer whether, or not, such delays caused completion to be delayed beyond the contract completion date). Counsel for Ovcon did not appear to make this distinction on a case-by-case basis. It appears, therefore, that in the appropriate circumstances, the door is open to claim direct loss and/or expense if delays occur but do not necessarily endanger the contract completion date, and that may include timerelated costs which would not have been incurred save for the delay. Secondly, as to there being no authority on the point (quoted both in the Ovcon case and referred to in Keating in the Glenlion case), this topic has been addressed on several occasions in the United States:
'Costs are no less damaging merely because they occur fortuitously before a contract deadline rather than after.' [Sun Shipbuilding & Dry Dock Co v. United States Lines Inc. 76 US C.Cls 154 (1932)j 'The Government may not hinder or prevent earlier completion without incurring liability.' [John F Burke Engineering and Construction, ASBCA No 8182, 1963 BCA] 'Whilst it is true that there is not an "obligation" or "duty" of defendant [owner] to aid a contractor to complete prior to the completion date, from this it does

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not follow that the defendant may hinder and prevent a contractor's early completion without incurring liability. It would seem to make little difference whether the parties contemplated early completion, or even whether the contractor contemplated an early completion. Where the defendant [owner] is guilty of "deliberate harassment and dilatory tactics" and a contractor suffers loss as a result of such action, we think that the defendant is liable.' [Housing Authority v. E W Johnson Construction Co 573 S W 2d at 3231

Some US cases address other relevant matters:


'The contractor must demonstrate that its planned schedule for the early completion of its work was both reasonable and attainable.' [Owen L Schwam Construction Co ASBCA No 22407, 79-2 BCA (CCH)] 'It is not necessary for the contractor to communicate its intent to finish early to the owner.' [Sydney Constructions Co No 21377, 77-2 BCA (CCH)]

In most situations, it is not the programme which is relevant. The contractor must show that his progress was affected and that he suffered loss and/or expense thereby. It is submitted that the Ovcon decision was wrong in the light of the arguments set out above. A contractor is entitled to loss and/or expense if the employer causes delay or disruption to the contractor's progress, whether or not the programme showed early completion and whether or not the contractor finished after the contract completion date. However, it is important to consider the facts of each case very carefully as there may be some compelling reasons, in some circumstances, to take a different view.

Evaluation of loss of productivity


It is universally recognised that the evaluation of the additional costs arising out of loss of productivity is difficult, if not impossible, but that this should not be a bar to a claim for reimbursement of these additional costs where loss of productivity can be demonstrated. Leading authorities have said:
'. . . however, the classic element in a contractor's claim which gives rise to most difficulty arises where delay in completion or disturbance of economic working has been caused, whether by the owner's breaches of contract, or by late or numerous variations. Either of these can be present by themselves, though often they will be present together. . . .' [Construction Contracts: Principles and Policies in Tort and Contract by I.N. Duncan Wallace (para 8-10 at p. 115)]

Formulation and Presentation of Claims

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'A reasonably efficient contractor should be able to establish actual costs incurred, but it will clearly be impossible to prove as a matter of fact what the costs would have been had the delay or disruption not occurred . . . '. . . All that can be said is that the architect or quantity surveyor must do his best to arrive at a reasonable conclusion from whatever evidence is available. In our view, it must be a reasonable assumption that some loss will have been suffered in these respects where delay or disruption has occurred and the architect or quantity surveyor cannot resist making some reasonable assessment simply on the grounds that the contractor cannot prove in every detail the loss he has suffered.' [Building Contract Claims, second edition by Vincent Powell-Smith and John Sims (pp. 139-140) (p. 162 in the third edition)]

See also Wood v. Grand Valley Railway Co (infra). A number of methods of assessing or estimating the cost of lost production (loss of productivity) have been used with varying degrees of success.

Comparison of actual costs with allowance in the tender


This method is based on the difference in actual expenditure on manpower, according to the contractor's labour records, with the manpower allowed in the tender, after making adjustments for variations and inefficiency. This method is put forward as a possible means of assessment by a number of authorities:
'There can be no custom or general rule because the loss will vary in each case. A better starting point is to compare actual labour costs with those contemplated.3 Thus a particular activity or part of the works is taken and, where the contract price can be ascertained, as by reference to the priced bills, the labour element is extracted. This is a matter for experienced surveyors and is done by taking the unit price and applying constants which are generally accepted in the trade. From the contractor's records the actual labour content for the activity or part is extracted. From the difference must be deducted any expenditure upon labour which was not caused by the breach, e.g. delay or disturbance caused by bad weather, strikes, nominated sub-contractors or the contractor's own inefficiency. If the original contract price was arrived at in a properly organised competition or as the result of negotiation with a skilled surveyor acting on behalf of the employer, the adjusted figure for the difference is some evidence of loss of productivity. 3Such an approach was adopted in Whittall Builders v. Chester-le-Street District Council (unreported).' [Keating on Building Contracts, fifth edition by Sir Anthony May (p. 2 1 2 ) l

The case cited in Keating - Whittall Builders v. Chester-Le-Street District Council (unreported) - is misleading, as it suggests that the

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method of comparing actual costs with the tender was used and accepted in this case. However, that is not so (see commentary on this case, infra). Legal acceptance of this approach has been mixed. In London Borough of Merton v. Stanley Hugh Leach Ltd (1985) 32 BLR 51 it was held that no evidence was available to support such a contention and that the result was too speculative. However, in Penuidic Contracting Co. Ltd v. International Nickel Co. of Canada (1975) 53 DLR (3d) 748, the Supreme Court of Canada upheld the lower court's decision to accept the difference between the contractual sum per ton of ballast (in a track for a railroad) and the larger sum which was attributable to the adverse conditions caused by the employer's breach of contract. The court was impressed by the decision in Wood v. Grand Valley Railway Co (1916) 51 SCR 283, where Davies J said:
'It was clearly impossible under the fads of that case to estimate with anything approaching to mathematical accuracy the damages sustained by the plaintiffs, but it seems to me to be clearly laid down there by the learned Judges that such an impossibility cannot "relieve the wrongdoer of the necessity of paying damages for his breach of contract" and that on the other hand the tribunal to estimate them whether jury or Judge must under such circumstances do "the best it can" and its conclusion will not be set aside even if "the amount of the verdict is a matter of guess work".' [Emphasis by the Supreme Court of Canada]

In Construction Contracts: Principles and Policies in Tort and Contracts by I.N. Duncan Wallace, the distinguished author respectfully submits that the decision of the Court of Appeal (which rejected the basis of assessing damages accepted by the lower court and ultimately upheld by the Supreme Court) is to be preferred, but the author goes on to say that there is no evidence that the author's reservations were canvassed in evidence or argument. Acceptance of this method, it is submitted, will depend on: to what extent the cause and likely effects are supported by evidence to satisfy the requirement to prove the extent of the loss 'on the balance of probability'; whether the claim arose out of a breach of contract or under one of the provisions of the contract. Perhaps the courts may be persuaded to accept this method in the case of breach of contract but may be less willing in the case of such additional costs arising out of variations or change orders. Each case must be viewed on its merits.

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Assessed percentage addition on disrupted work


The method of adding a percentage on to the direct costs of labour or plant is perhaps the most common in construction and engineering contracts. Arbitrary additions are unacceptable:
'Some contractors add an arbitrary percentage to the contemplated labour costs. It is difficult to see how this can be sustained.' [Keating on Building Contracts by Sir Anthony May (p.212)]

Where no other method is possible, calculations based on sound reasoned assumptions may be acceptable, depending on the circumstances. In the United States, the Armed Services Board of Contract Appeals (ASBCA) accepted a 25 per cent inefficiency for winter work: Appeal o f Pathman Construction Co ASBCA 14285, 71-1 B.C.A. (CCH) 8905 (1971)- Construction Delay Claims by Bany B. Bramble and Michael T. Callahan at p.199 (p.3-56 in the third edition).

Comparison of output or productivity with previous or other projects or industry statistics


Where the contractor keeps records of output and productivity on similar projects, comparison of output or productivity on the affected project with that achieved on unaffected projects may be a basis for assessment. Alternatively, published industry statistics may be a guide for comparison. This method does not take into account different (and sometimes unique) circumstances in any individual project or the difference in managerial supervisory or organisational skills employed on the affected and unaffected projects. Nevertheless, this method may be an acceptable basis in some circumstances and may be used in addition to the other methods described above as a means to support other calculations or assessments. In Construction Delay Claims by Barry B. Bramble and Michael T. Callahan at p. 201 (pp.12-69 to 12-70 in the third edition), the authors cite 'Effects of Job Schedule Delays on Construction Costs issued by the Mechanical Contractors Association of America, at 7 n.124':
'Successful contractors have learned to predict with considerable accuracy the number of man-hours that would normally be expended by their production workers to accomplish the tasks to be performed if conditions remain as expected at the time estimates are prepared. Most contractors have performed similar work many times in the past and have kept records of man-hours expended to accomplish various tasks. In addition, reference manuals indicating average times consumed for a wide variety of tasks are used as estimating guides. Individual contractors can add or subcontract percentage factors to the average times to allow for circumstances they expect to encounter on a given project

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which differ from those encountered on previous projects or those on which industy averages are based.'

Comparison of output or productivity during known disruption with output or productivity when little or no disruption occurred
This method takes into account what productivity the contractor could (and did) actually achieve when allowed to execute the work normally, and the actual productivity when the work was affected (disrupted or dislocated) by the causes relied upon by the contractor to justify his claim. Apart from simultaneous contractor defaults during the period of disruption or dislocation (which had not also been evident during the period when the work was not affected), this method overcomes all of the problems associated with any of the other methods mentioned (including general contractor inefficiency). That is to say, if the contractor is generally inefficient over the duration of the project, this factor is taken into account in the direct comparison of productivity, but if a new element of contractor inefficiency is introduced during the affected period (such as changes in supervision and/or labour force), then this new inefficiency must be addressed by making appropriate adjustments to the results obtained by direct comparison of productivity. This method is put forward in Emden's Building Contracts and Practice, eighth edition, Volume 2 by S. Bickford-Smith (p.N/45):
'Initially, a period is examined when the contract was running normally, and the value of work done during that period is assessed and then divided by the number of operatives and/or items of plant on site. The figure thus anived at is compared with the same figure calculated for the period of delay or disruption, and the comparative figures are then used to calculate the amount of loss.'

In Problems in Construction Claims by Vincent Powell-Smith (p.112) the distinguished author expresses doubt about the legal basis of this method. The author does not, however, make reference to the case of Whittall Builders Company Ltd v. Chester-le-Street District Council (infra), in which this method was clearly accepted. It is possible that the author missed the fact that the Whittall case dealt with this issue (as it was more widely referred to in connection with head office overheads to which the author referred elsewhere), since the lack of any reference to it with respect to disruption claims (to criticise or support the decision) is inconsistent with the otherwise meticulous reference to the latest cases throughout the author's publication. This method was approved in Whittall Builders Company Ltd v. Chester-le-Street District Council (1985) unreported. Mr. Recorder Percival QC said:

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'. . . Therefore I take the view that the total paid to the men employed, whether by wages or bonus, should be taken as the cost actually and properly incurred by the plaintiff for labour in pursuance of the contract up to the end of November 1974. Clearly the consequence of the defendant's breaches was that the plaintiff received much less value for that expenditure than he would have done if there had been no breaches. . . '. . . Several different approaches were presented and argued. Most of them are highly complicated, but there was one simple one - that was to compare the value to the contractor to the work done per man in the period up to November 1974 with that from November 1974 to the completion of the contract. The figures for this comparison, agreed by the experts for both sides, were 108 per man week while the breaches continued, 161 per man week after they ceased. 'It seemed to me that the most practical way of estimating the loss of productivity, and the one most in accordance with common sense and having the best chance of producing a real answer was to take the total cost of labour and reduce it in the proportions which those actual production figures bear to one another - i.e. by taking one-third of the total as the value lost by the contractor. 'I asked both Mr. Blackburn and Mr. Simms if they considered that any of the other methods met those same tests as well as that method or whether they could think of any other approach which was better than that method. In each case the answer was no. Indeed, I think that both agreed with me that that was the most realistic and accurate approach of all those discussed.' The above case is illustrated in Figure 5.22. In General Insurance Co of America v. Hercules Construction, 385 F.2d 13(8th Cir 1967), productivity and costs during the period when there were difficulties in delivery of pre-cast units (February 12 until May 6) were compared with productivity and costs during the period when pre-cast units were delivered in substantially proper sequence with minimal fabrication deficiencies (after 6 May). The increase per unit that it cost Hercules was then multiplied by the number of units erected during the period from February 12 to May 6 in order to determine the amount of damages. The court found in favour of Hercules and awarded damages of US$21900. General Insurance Company appealed on the grounds that the proof of damages put forward by Hercules was illogical and not in accordance with law. It was held that Hercules's method of computing damages was not unreasonable as a matter of law. The above case is illustrated in Figure 5.23. In Natkin & Co v. George A Fuller Co 347 F.Supp.17 (WD Mo 1972), reconsidered 626 F.2d 324 (8th Cir 1980), the court accepted comparison of productivity as a basis of assessment of damages (page 34, para XI1 D):
'As of 11/25/66, on which date all parties accepted Natkin's performance of the original contract as 43% complete, Natkin's cost experience on that work which was comparable to the work remaining to be performed. . . . . .was

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Construction Contract Claims


1974
1975

ORIGINAL CONTRACT PERIOD

W Z / Z / Z / J / L H l l / I / I Y h Y / I ' / / a
1
PIECEMEAL POSSESSION

''.I4

--------------------------..-----.

v
43 WEEKS TOTAL DEUY

ACTUAL CONSTRUCTION PERIOD

EQUNALENT PERIOD OF D U Y %u-pRmoNcA~IoN COS TS 4 %R-PRmoNcATIoN COSTS 33.38 LOSS OF PRODUCTION

\
\

- -- ---

Figure 5-22 Whittall Builders Company Ltd v. Chester-le-Street District Council 16.5.1985

JAN

FEB

MAR

APR

1962 MAY

JUN

JUL

AUG

SEP

2M

ORIGINAL PROGRAMME

1212

ACTUAL PROGRESS

119

OSS OF PRODUCTIVIN

Figure 5.23 General Insurance Co of America v. Hercules Construction 385 E2d (8th Cir 1967)

Formulation and Presentation of Claims

159

0.181 manhours for each standard piping unit, as contrasted with Natkin's original estimate of 0.20 for each such unit.'

The General Insurance and Natkin cases are cited in Construction Delay Claims by Barry B. Bramble and Michael T. Callahan (pp. 201-204) (pp.12-70 to 12-73 in the third edition) where, with respect to Natkin v. Fuller, the authors write:
'Costs for performing Natkin's work prior to November 25, 1966 were 0.181 man-hours for each standard piping unit compared to 0.20 man-hours after November 25, 1966. . . . . . The court awarded Natkin $715,567 for its lost productivity claim. The court stated that comparing actual costs before and after the point in time defendant's failures caused damage to plaintiff was a reasonable method for computation of damages. The court also said Natkin's evidence of comparing the man-hour cost for a standard piping unit before November 25, 1966, with the cost after that date was a logical basis for computing Natkin's damages.'

There is an important difference between the extract from the judgement (which, in paragraph XI1 D, compares actual productivity with the tender productivity) and Bramble and Callahan's interpretation (which appears to compare actual productivity before the disruption with productivity during disruption). However, the authors' interpretation of the court's findings are otherwise consistent with the judgement which states at page 34, paras XI11 A and B:
'A. Plaintiff's cost for performing each unit of its work under the contract after November 25, 1996 were greater than they were prior to November 25, 1996. 'B. Plaintiff's costs were greater after November 25, 1996 because it was compelled to accelerate when the defendants failed and refused to grant extensions of time, and there was a resulting impact.'

and in its Conclusions of Law at page 35, Appendix B, Conclusion IX:


'Plaintiff's evidence of comparing the manhour cost for a standard piping unit before November 25, 1996 with the manhour cost for a standard piping after said date, is a logical basis for computing plaintiff's damages pertaining to additional labor costs.'

It should be noted that the court accepted that Natkin's actual productivity before the disruption commenced (0.181 man-hours per piping unit) was the starting point (baseline productivity)from which to calculate loss of productivity. That is to say, even if (as the figures quoted suggest) Natkin's productivity fell to the same level as its tender allowance during the period of disruption (0.20 man-hours per piping unit), it was right to compensate Natkin if his productivity during the disrupted period was no lower than its tender. Conversely, if a contractor's achieved productivity before disruption

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1966 S 1967 J

25111
LOSS OF PRODUCTIVITY

x 100%= 9.5%

DURING PERIOD OF

= 0.1 81 man-hours = 0.20 man-hours

Figure 5.24 Natkin & Co v. George A Fuller Co 347 E Supp 1 7 (WD Mo

1972), reconsidered, 626 E2d 324 (8th Cir 1980)

was less than the tender, then that would be the baseline from which to measure loss of productivity. The above case is illustrated in Figure 5.24 based upon the assumption that the quoted productivity figures before and during disruption were as stated by Bramble and Callahan.

Which method of calculating loss of productivity should be adopted?


Any of the methods described above may be a reasonable method of evaluation in the appropriate circumstances, but the various methods are subject to varying degrees of certainty and accuracy. The situation is best summed up by I.N. Duncan Wallace in Construction Contracts: Principles and Policies in Tort and Contract (para 8.24, pp.124-125):
'The computation of loss of productivity claims is one of the more difficult prob lems in this field. An arbitray guess or assertion of some percentage of the total affected labour or plant costs of the trades in question is not convincing. Another highly unconvincing method would be to compare actual total costs of the trades affected against alleged pre-contract estimates of those costsz3 . . . . . . More helpful will be a close analysis of any contract programme required to be supplied by the contractor, and a close correlation of it to the contractor's recorded labour and plant and work output on site, together with the chronology and contemporay evidence of the breaches or variations in question. In addition, expert evidence coupled with available publications showing the plant, labour and mate-

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rial elements of the better known construction processes, with various factors for the special conditions of particular contracts, are available in the civil engineering as well as the building industries. But the most convincing of all will be comparisons of actual hours and output, during a period known to be unaffected, with those in the affected period. In addition, of course, there will frequently be found to be contemporary site records kept of standing time of men or plant on well-organised contracts. In practice, good quantity surveyors in both industries, on each side of the negotiating table, can always do much better than asserting arbitrary percentages on affected turnover, or comparing contract with actual total cost. As will be seen, there are very powerful legal as well as logical objections to the use of this latter "total cost" method.' [Emphasis added] The reference cited by Duncan Wallace at 23 is E.C. Ernst, lnc v. Koppers Co 4 7 6 F. Supp.729 (WDPa 1979). The most convincing method, that is comparing productivity during a period when there was no disruption with productivity during a disrupted period, is not without its problems. In Whittall Builders Company Ltd v. Chester-le-Street District Council (supra) the method accepted by the court was based on a comparison of productivity over all trades for the duration of the project by expressing the output per man-week in pounds sterling, that is: Average productivity during period of default Average productivity during period of normal working

108 per man-week 161 per man-week

therefore loss of productivity during period of default was:

161-E108 x 100 per cent = 33 per cent 161


This percentage was then applied to the total cost of labour during the period of default resulting in 33 per cent of the cost of labour (representing the loss of productivity), being a total of 21479.35. Because this project was for the refurbishment of 108 dwellings, the proportions of each trade and the type of work being undertaken in each week were probably similar (save for the beginning and end of the period). These circumstances lend themselves to comparison in the manner used in this case. In General Insurance Co of America v. Hercules Construction (supra), the comparison was made between productivity on the particular sections of the work affected (in this case erection of pre-cast units). These circumstances also lend themselves to comparison in this manner because of the repetitive nature of the delayed and disrupted work. Similarly in Natkin & Co v. George A Fuller Co (supra), installation of piping units were the subject of delay and disruption, thereby making it suitable for comparison purposes. In this case the loss of productivity may have

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been calculated as follows (assuming Bramble and Callahan are correct supra): Productivity during period o f no default Productivity during period o f default 0.181 man-hours per unit (or 5.525 units per hour) 0.20 man-hours per unit (or 5.00 units per hour)

therefore the loss of productivity during the period of default was: 5.525 - 5.00 x 100 per cent = 9.5 per cent 5.525 The above method (unamended)may not be appropriate where the proportions of the various trades, disciplines and activities are substantially different during the period of disruption or dislocation when compared with the period when there was no disruption or dislocation. Significant errors can occur if it is not recognised that the man-hour content may be very different during the following phases of the project: Phase 1: Superstructure - a comparatively low labour content may be involved in this stage because of the high proportions of mechanised plant and large material sections, such as steel and prefabricated units, involved. Phase 2: 1st and 2nd f i x carcassing and service installations - a higher labour content is invariably involved during this section of work. Phase 3: Final fitting-out and installation of equipment - during this period the manpower element is likely to be a lower proportion of the total cost because of the high value of fittings, finishing and hi-tech equipment. Further changes in the proportions occur as the three phases overlap, so that the labour content as a proportion of the total may be constantly changing. This difficulty may not be overcome simply by comparing the productivity of each individual trade, discipline or activity, as there may be problems in showing that periods of lower productivity in any single discipline are due to causes of disruption directly linked to that discipline. For example, substantial causes of disruption to pipe fitting may cause wholesale disruption to electrical installations, HVAC installations and fitting-out (even where there may have been no changes to those disciplines). It is also essential to take account of all of the following: variations and change orders; other claims and additional work; growth (or re-measurement of contract work); any other contract adjustments.

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One solution is to employ a method based on Earned Value Costing. Earned Value Costing has developed from the US DoD Cost/Schedule Control Systems. In its basic form, Earned Value Costing measures performance by monitoring total cost or value against the planned budget. However, the Earned Value Costing method deals with costs and not manhours. The principal objectives of and results from Earned Value Costing (that is to measure performance), and comparison of performance during affected and unaffected periods, are valid and admirably suited to satisfy the criteria which were the basis of assessment in the UK and US cases cited above. In order to utilise the basic techniques of Earned Value Costing to calculate the loss of productivity of labour (or plant), the following process takes into account most of the shortcomings which would otherwise be inherent in this method of calculation:

(1) Determine the actual man-hours (cumulative and monthly) from labour records. (2) Determine the planned man-hours at the same dates (as I), based on measurement or by reference to the schedule or programme and planned resource allocation. (If the planned man-hours have been based on the schedule or programme, it is essential that these should be adjusted to account for any delay or 'slippage'.) (3) Add the man-hour content in all variations, change orders, additional work and other claims to the man-hours determined in 2 above.
The performance index or productivity factor (PF) of labour is then calculated in the same way as in the Earned Value Costing method: Achieved man-hours during the period PF = Actual man-hours expended during the period where Achieved man-hours is the sum of the man-hours included in the tender plan for the original contract work plus the man-hours in any additional work (variations, change orders and other claims etc.). Apportionment or allocation of the man-hours in the additional works should be done as accurately as possible. Day-works are the easiest to allocate to the time when the work was carried out. Variations and change orders may be allocated to periods of time according to the nature of the work and the schedule of work or programme. Subcontract work or 'work packages' may be allocated according to known or assessed periods of execution. Growth or changes due to re-measurement may be identified according to the individual disciplines or activities affected and allocated based on the progress of the changed work. Comparison of productivity may then be done as shown in the following example (assumed data):

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Construction Contract Claims

Analysis of man-hours and productivity in affected or disrupted period A


= 905 Actual man-hours expended during the period Planned (or achieved) man-hours during the period = 825

PF =

Achieved man-hours 825 - - = 0.912 Actual man-hours 905

that is, for every 1.0 man-hour worked, 0.912 man-hour's value of work was produced.

Analysis of man-hours and productivity in unaffected or normal period B


Actual man-hours expended during the period = 601 Planned (achieved)man-hours during the period = 623 Achieved man-hours 623 = -= 1.031 PF = 601 Actual man-hours

that is, for every 1.0 man-hour worked, 1.031 man-hours' value of work was produced.
Loss of productivity in affected period A (compared with unaffected period B)
- 1'031-0.912 x 100 = 11.54 per cent

1.031

It should be noted that the data used for this example does not, in itself, indicate separate periods for which a loss of productivity claim may arise. In order for the Earned Value method to succeed in a loss of productivity claim it is also necessary to be able to show distinct periods for comparison purposes, and that the period for which loss of productivity is claimed is affected by a significantly higher incidence and/or volume of defaults or disruptive matters relied upon as causes of the loss of productivity. This process will need considerable research but is essential to illustrate cause and effect. Where the productivity factor (PF)departs significantly from 1.0, the figures may be distorted if a substantial amount of the additional work is based on cost (for example day-work), as this work will always be executed of 1.00. That is to say, there is no loss of with a productivity factor (PF) productivity on the actual work carried out on a day-work basis or on work which is priced from hours actually worked. This distortion may be overcome by the following modification to the formula:

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Achieved man- hours during the period less the man- hours expended at cost PF = Actual man- hours expended less the man- hours recovered in additional work at cost In the modified formula, the achieved man-hours includes the total value (in man-hours) in the original contract work and in additional work executed during a given period based on rates or prices applicable to the work executed (that is all man-hours at cost, such as day-work, have been excluded from the calculation). If, during the periods in the above example, a significant amount of work had been done at cost (that is for every hour worked, one hour's value of work had been achieved, or PF = 1.0), then the calculation of loss of productivity may be as follows:

Analysis of man-hours and productivity in affected or disrupted period A


= 125 Man-hours expended at cost during period = 905 Actual man-hours expended during the period Planned (or achieved) man-hours during the period = 825 PF = Achieved man-hours - 825 - 125 = 0.898 Actual man-hours 905 - 125

that is for every 1.0 man-hour worked, 0.898 man-hour's value of work was produced.

Analysis of man-hours and productivity in unaffected or normal period B

Man-hours expended at cost during period = 75 Actual man-hours expended during the period = 601 Planned (achieved) man-hours during the period = 623 PF = Achieved man-hours - 623 - 75 = Actual man-hours 601 - 75 that is for every 1.0 man-hour worked, 1.042 man-hours' value of work was produced.
Loss of productivity in affected period A (compared with unaffected period B)

- 1'042-0'898 x 100 = 13.82 per cent 1.042

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Similar calculations may be done to determine the loss of productivity of mechanical plant. Unfortunately, when projects go wrong from the outset, it may be impossible to identify any period when the progress of the works was relatively free from disruption. Alternatives such as comparing parts of the works which were not disrupted with parts of the works which suffered from disruption may be applied. If neither of these methods can be adopted, one of the other alternative methods mentioned above may be the only solution. In many circumstances, it is difficult or impossible to calculate the cost of disruption of each individual element. A global approach may be the only solution, J. Crosby & Sons Ltd v. Portland Urban District Council (supra - Chapter 1). This method may be appropriate where the evidence of delay and disruption is overwhelming and there is no significant default on the part of the contractor. If it can be shown that the contractor was partly responsible for the disruption, this type of claim may fail entirely, or the additional costs may have to be borne, in part, by the contractor.
5.10 Claims for Acceleration

In the event of delay to the progress of the works, the employer, or the contractor, may be faced with deciding whether, or not, there are good grounds to accelerate the progress of the works to bring about earlier completion (to the whole, or part of the works). From the employer's point of view, acceleration may be advantageous in the following circumstances: where it is essential to achieve completion by an earlier date for commercial reasons; where the delays qualify for additional payment, there is a real probability that the cost of acceleration will be less than the cost of prolongation for the period, which can be reduced by acceleration; where there may be substantial savings in escalation costs as a result of earlier completion; where the actual loss to the employer for late completion is greater than the liquidated damages which may be recovered from the contractor. Some forms of contract (for example GC/Works/l Edition 3) provide for acceleration. However, the contractor's consent is usually required and the acceleration cost is normally agreed beforehand. Where there are no contractual provisions, a separate agreement will be required. In any event, the terms of an acceleration agreement (including matters required to be dealt

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with pursuant to clause 38(2)(e)of GC/Works/l) should contain provisions in the event of:
a subsequent delay by qualifying events which would entitle the contractor

to an extension of time for completion (thereby delaying the earlier date for completion); a failure to complete by the earlier completion date for reasons which do not qualify for extensions of time (the employer may wish to increase the rate of liquidated damages in the light of his revised anticipated loss). Whatever the reason for acceleration (even if the contractor is partly responsible for delay and is already liable for liquidated damages), the contractor is likely to be in a strong bargaining position when terms are agreed. The employer should be reasonably confident that the objectives of an acceleration agreement will be met before concluding any deal. From the contractor's point of view, acceleration may be advantageous if he is in culpable delay and the cost of acceleration is less than the cost of prolongation. However, when a contract is delayed and no (or insufficient) extensions of time have been made, the contractor may be faced with a dilemma. Should the contractor proceed to complete later than the completion date and run the risk of liquidated damages or should he accelerate the progress of the works to eliminate or reduce that risk? Very often, pressure is brought to bear on the contractor to improve progress. The language used in these circumstances usually avoids the term 'accelerate', but the contractor is intended to be left in no doubt that he is being pressed to take measures to improve the progress of the works. Veiled, or patently open, threats of deducting liquidated damages may sometimes be used. The contractor's options are:
a to keep his nerve in the belief that the extensions of time will eventually

follow (or be awarded in arbitration), o r to take all of the necessary measures to improve progress and bring about earlier completion, or a to take some measures to improve progress in the hope that some extension may subsequently be made to the actual completion date.
a

The decision to accelerate in such circumstances is not easy. If the contractor has a 'cast iron' case for extensions of time, then the first option is probably the best. In these circumstances, the right to recovery of acceleration costs may be in doubt. If the architect, or engineer, has responded to all requests for an extension of time, giving reasons for not making an extension, or explaining why an extension was for a lesser period than the contractor's estimate, the contractor is better placed to judge whether, or not, the extension is reasonable or capable of being reviewed. However, if

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there is no response, or if the response is an unreasoned rejection of the contractor's application for an extension of time, the contractor has no means by which to judge the eventual outcome which may result from further representations. All of these circumstances, including the pressure which may be brought to bear to improve progress, will influence the contractor's decision to accelerate. Where it can be shown that the contractor was entitled to an extension of time when he took the decision to accelerate, and that the architect, or engineer, ought reasonably to have made the extension of time promptly, there are grounds to argue that the contractor is entitled to reimbursement of reasonable acceleration costs. The claim will be based on the premise that there was a breach of contract (that is, failure to operate the extension of time provisions). The success of such an argument will depend on: whether the contractor had complied with the contractual provisions to give notice and particulars of the delay in accordance with the contract; whether the architect, or engineer, had properly considered all of the circumstances and events for each delay before making, or rejecting, an application for an extension of time (there may be a considerable difference between a genuine attempt to make an extension where the conclusion was merely wrong, and a rejection out of hand without proper, or any, consideration being given to the matter); to what extent the contractor had communicated his intention to accelerate and the circumstances at the time of making the decision; whether, or not, the contractor's decision was a sensible commercial decision in the circumstances; whether, or not, the contractor's claim for the costs of acceleration was less than the probable cost of prolongation (it may be equitable to reimburse the contractor for the costs of acceleration if the employer was ultimately going to benefit by a saving in the amount of the contractor's probable claim for prolongation -that is to say, the employer should not benefit from his own default: Alghussein Establishment v. Eton College - Chapter 1, supra). Invariably, it can be shown that the reason for failing to make extensions of time was a result of pressure from the employer on the architect, or engineer. Sometimes this is evident from the conduct of the employer's representatives and the professional team at meetings (or even in correspondence). Where this is not evident, it may come to light during discovery of documents or upon cross-examination in arbitration or litigation. Unfortunately, it is becoming increasingly common for some powerful employers to use the threat of termination of services (or the promise of future work) as a lever to put pressure on, or influence the architect or engineer.

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If such pressure or influence was present, the contractor would have a prima facie claim for reimbursement (see Morrison-Knudsen v. B.C. Hydro & Power and Nash Dredging Ltd v. Kestrel1 Marine Ltd - Chapter 1, supra). If it should be established that there is a case for reimbursement of acceleration costs, there is the difficult task of proving the actual amount of the claim. Costs which need to be considered are:
Non-productive overtime - That is, the premium rates paid to operatives for working outside normal hours. Not all of the overtime hours are recoverable. Only those hours in addition to the allowance in the contractor's tender should be claimed (if the contractor had always planned to work nine hours per day and Saturday mornings in order to complete within the original contract period, he could only claim the additional hours in a claim for acceleration). Additional cost of employing extra staff and operatives -Higher rates of pay, incentives, travelling time, subsistence and transportation costs of importing labour. Loss of productivity - An increase in the number of staff and operatives does not necessarily bring with it a proportional increase in production. On a congested site, labour cannot be utilised as efficiently. The co-ordination of various activities and trades becomes more demanding and there is likely to be a greater incidence of waiting time between activities. Increase in the use of lighting and power - Inevitable in winter and in large buildings and basements. lncrease in the hire of equipment and plant (sometimes fuel only). Whatever the reasons for acceleration, the contractor ought to be aware, before incurring the additional costs, that care should be taken to keep good records to enable the above costs to be substantiated. It should also be borne in mind that, whatever the moral grounds justifying acceleration, in practice this head of claim is one of the most difficult to justify on legal grounds.
5.11 Variations

Variations to the works are almost inevitable. Therefore, all standard forms of contract contain provisions to deal with them. Some variations can be made without affecting the progress of the work and with no change in the method, sequence and cost of the work to be done in the variation. In such circumstances, the rates applicable to the contract can be applied to the measured quantity of work in order to arrive at the value of the variation.

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However, even when these simple rules are applied, there may be some indirect costs which need to be addressed. For example, if the costs of insurance premiums have been included in the 'Preliminaries' sections of the bills of quantities, there may have to be an adjustment made to the 'value related' element of the insurance premiums in the bills to reflect any change caused by variations. Where there is a decrease in the contract price as a result of variations, there may be no adjustment to the cost of insuring the works (depending upon the insurer's practice in this regard). However, a decrease in the contract price may justify a reduction in the allowance for employer's liability insurance. Likewise, if small tools and equipment are priced in the preliminaries section of the bills, an increase may be justified if the contract price is increased by variations. Where there is a decrease in the contract price, the likelihood of the contractor being able to save on the amount of tools and equipment is remote (unless the reduction in work was known well in advance of the need for the necessary tools and equipment). In practice, most variations have some effect on the progress of the works and the method of executing the work. Where it is possible, each variation should be valued taking into account all of the delaying and disruptive elements which are directly related to the variation. Common factors which affect the valuation of variations are:

Changed conditions or circumstances -The varied work may be carried out in different circumstances than those contemplated at tender stage for reasons which are entirely related to the nature of the variation itself. For example, the contractor may have allowed for excavation to reduced levels using scrapers to deposit spoil in a temporary spoil heap for future disposal. Following a variation to add a length of surface water drain across the site in the location of the spoil heap, the contractor is forced to excavate and load into lorries and cart away most of the spoil in one operation. The revised method takes longer so that more work is done in wet weather and the operation is more costly. There is no delay or disruption to the works as a whole. This change could, and should, be dealt with by valuation under the variation provisions in the contract. There is express provision for such an eventuality in clause 13.5.5 of

JCT80.
Changed quantities - Some changes in quantities have a significant effect on cost, even when the nature of the work and the method of executing the work are unchanged. For example, an increase in the volume of concrete may require working overtime in order to complete a floor slab which may be critical to the activity planned to commence the following day. Another example is where an increase in quantities causes

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some of the work to be carried out later. If the quantity of brickwork increased by twenty per cent, and using the same resources, the time to execute the work (but not any other activities or the contract as a whole) was extended into another pay increase, then the extra costs resulting from the pay increase should be reflected in the value of the variation (assuming a fixed price contract). Changed timing - Work of a similar nature to that contained in the contract may be ordered at different times so that material and labour costs are not the same as those for the original work. Small quantities - Variations requiring ordering and execution of similar work in small quantities may involve loss of purchasing discounts and increased prices payable to subcontractors who may have to return to site after completion of the original subcontract work. Time-related costs - Where it is possible to isolate a period of delay to part, or the whole, of the works to a single variation (or group of variations), the time-related costs may be reflected in the value of the variation. For example, a major variation to the ground floor structure may cause the time taken to reach completion of the first floor slab to be delayed by one week. If may be appropriate to include the costs of the entire concrete, steelwork and carpenter resources, including concrete mixers, pumps, dumpers, tower-crane, supervision and other preliminary items in the value of the variation. Additional time may be required as a result of actual remeasured quantities exceeding the quantities in the contract bills. Time-related costs were the subject of a dispute under conditions of contract which were similar to those contained in clause 52 of the FIDIC and ICE conditions of contract. In Mitsui Construction C o Ltd v. Attorney General of Hong Kong (1986) 33 BLR 1, the executed work in a tunnelling contract was significantly different from that measured in the bills of quantities. The changes in quantity were not a result of a variation order given by the engineer. The contract period was twenty-four months. The result was that the contractor had taken much longer to complete the works and the engineer had granted an extension of time of 784 days. The contractor argued that he was entitled to compensation for the costs of the extra time taken to complete the works. The employer argued that the coni x any adjusted rates. The tract did not empower the engineer to agree or f Privy Council ruled that the engineer was empowered to vary the rates, thereby opening the way to take account of the time-related costs in the valuation of the variation. It should be noted that clause 2.2.2.2 of JCT80 contains provisions which would enable time-related costs to be taken into account in the event of a variation arising out of errors in the quantities in the contract bills.

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Clause 52(3) of the seventh edition of the ICE conditions provides for rates for varied works to be varied from the contract rates if the work is not of a similar character or is not carried out under similar conditions as those of the original contract work. Clause 52(4) provides for the contract rates to be revised for the original contract work if the execution of the original work renders such rates to be unreasonable. That is to say, the method or conditions under which the contract work is executed must be significantly affected by virtue of the varied work so that the contract rate is no longer reasonable. The adjustment of any rates are subject to the requirements to give notice, keep records and to provide particulars and accounts in accordance with clause 53. Clauses 52.1 and 52.2 of the 1987 FIDIC fourth edition contain similar provisions as the ICE conditions, except that clause 52.2 contains what appears to be very onerous provisions regarding the notice to be served by the contractor if he should require a change in any rate:
'Provided also that no varied work instructed to be done by the Engineer pursuant to Clause 51 [Variations] shall be valued under SubClause 52.1 or under this SubClause unless, within 14 days of the date of such instruction and, other than in the case of omitted work, before the commencement of the varied work, notice shall have been given either: (a) by the Contractor to the Engineer of his intention to claim extra payment or a varied rate or price, or (b) by the Engineer to the Contractor of his intention to vary a rate or price.'

If taken literally (and without reference to other provisions, infra), the provision to give notice within 1 4 days and before commencement of the varied work is a condition precedent to the contractor's (and the engineer's) rights under the clause. It is uncertain how RDIC intended the clause to operate. However, there are at least two important difficulties with these provisions:
(1)Clause 52.1 covers valuation of variations at contract rates as well as varied rates, therefore, if the clause is construed literally, it appears that every single variation (including variations where no instruction is required - such as increases in quantities), whether the rate is to be changed or not, must be notified within fourteen days of the instruction and before commencement of the varied work. It is hardly likely that the contracting parties agreed to this interpretation. It is probably impossible to comply with such provisions in every case, particularly in the case of an increase in quantities which may only come to light after the work was substantially completed and had been measured on site or from drawings by the engineer (or contractor). (2) Clause 53.1 of FIDIC states:

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'Notwithstanding any other provisions of the Contract, if the Contractor intends to claim any additional payment pursuant to any Clause of these Conditions or otherwise, he shall give notice of his intention to the Engineer, with a copy to the Employer, within 28 days after the event giving rise to the claim has first arisen.' Clause 53.4 provides for claims to be considered by the engineer if the contractor fails to comply with the twenty-eight day notice provision. However, no such relaxation exists to enable the engineer to lower any rates unless he gave the contractor notice in accordance with subclause

52.2.
In the event of a dispute over payment for variations if the contractor or engineer fails to comply with the requirements to notify the other under sub-clause 52.2, it is highly likely that an arbitrator will consider clauses 5 2 and 53 together in order to make sense of the contract. The 1 9 9 9 FIDIC Red Book contains completely new provisions: Sub-clause 12.3 provides for the rates or prices applicable to the measured work (including variations) to be the rates stated in the contract. However, a rate or price for an item of work may be amended if: '(a) (i) the measured quantity of the item is changed by more than 10% from the quantity in the Bill of Quantities or other Schedule, (ii) this change in quantity multiplied by such specified rate for this item exceeds 0.01% of the Accepted Contract Amount, (iii) this change in quantity directly changes the Cost per unit quantity of this item by more than 1%, and (iv) this item is not specified in the Contract as a "fixed rate item"; or (b) (i) the work is instructed under Clause 13 [Variations and Adjustments], (ii) no rate or price is specified in the Contract for this item, and (iii) no specified rate or price is appropriate because the item of work is not o f similar character, or is not executed under similar conditions as any item in the Contract.' The requirement to give notice and particulars etc. is given in sub-clause 20.1 (see 1.7 and 4.9, supra). In some circumstances, there may be arguments as to whether the contractual provisions permit the valuation of disruptive, or time-related, elements as part of the variation. The proviso to clause 13.5 of JCT80 is unclear and unhelpful in this regard. It would appear that the rules governing the valuation of variations are sufficiently flexible to permit a very wide interpretation of them so as to enable the quantity surveyor to adopt a sensible approach according to the circumstances. Contractors should bear in mind that it is in their interests to include as much as possible in

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the valuation of variations so that an element of profit can be recovered on the extra costs. This is particularly important where the provisions of the contract limit reimbursement to cost, or expense, if the additional payment is claimed under any other provisions.
5.12 Dayworks

Payment for work on daywork is usually reserved for circumstances where there is no other reasonable means of valuing the work to be done. Some contracts provide for the contractor to give advanced notice of any work to be done on daywork. There are usually strict time limits for submission of daywork vouchers. It is important to follow the contractual provisions so that the time and materials can be properly recorded and agreed. Contemporary notes setting out the reasons for recording the work on daywork may be helpful. It is important to include all incidentals, such as small tools and transport. Signatures verifying the times and materials used may not signify that payment will be made in the daywork account. However, proper records of such work can be of assistance as supporting documents for other methods of payment.
5.13 Fluctuations

Most fluctuating price contracts use a recognised formula which is applied f work done each month. The base date is predetermined at to the value o tender stage and fluctuations are calculated by reference to the published indices each month and the base index. Some contracts contain a 'cut-off date' in the event of delayed completion. However, not all of the effects of price increases may be recovered under the fluctuations clause. If there is a qualifying recoverable delay, any shortfall in recovery which can be substantiated may be included in the contractor's claim for additional payment under the appropriate contract provisions. In the event of delay during a fixed price contract, work is progressively carried out at later times than allowed for in the tender. The estimator ought to have allowed for the anticipated increases in cost during the contract period in accordance with the tender programme. By comparing actual progress and the value (or cost) of work done each month with anticipated progress and value (or cost) of work in accordance with the programme, it is possible to determine the probable effects of inflation as a result of the delay. The actual monthly value and relevant monthly index can be used to compare the planned monthly value and index as shown in Figure 5.25.

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TIME

PLANNED VALUE (OR COST)

ACTUAL VALUE (OR COST)

INFLATION

(p~vgy

)
VALUE IS USED. RESULT MAY HAVE TO BE ADJUSTED FOR PROFIT ELEMENT

AMV = ACTUAL MONTHLY VALUE (OR COST) MI = INDEX FOR RELEVANT MONTH PMV = PLANNED MONTHLY VALUE (OR COST) Bl = BASE INDEX (AT TENDER)

NOTE: IF MONTHLY -

Figure 5.25 Calculation of fluctuations using published indices

It should be borne in mind that this method may not be accepted as a means of measuring the additional cost due to the delay. However, provided that suitable adjustments can be made for materials and subcontracts let at fixed prices (which are not changed during the contract), materials on site and other factors which may be applicable, this method is generally

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recognised as a reasonable means of calculating reimbursement. Other evidence, such as comparison of actual invoices and wage rates paid at different times may be required.

5.1 4 Quantum Meruit A well-drafted variation clause will enable the employer to make substantial changes to the works without invalidating the original contract. Nevertheless, variation clauses do not enable the employer to vary the works without limit. In Wegan Construction Company Pty. Ltd. v. Wodonga Sewerage Authority (see Chapter 1,supra), substantial changes were made and the contractor claimed payment on a quantum meruit basis. The variation clause applicable to this case, in part, is almost identical to the pre1999 FIDIC conditions of contract, and is sufficiently similar to many other forms of contract to justify a detailed analysis of the case. Clause 40.1 o f the contract contained the following terms:
'Variations Permitted. At any time prior to practical completion the engineer may order the contractor to: (a) increase, decrease or omit any portion of the work under the contract; (b) change the character or quality of any material, equipment or work; (c) change the levels, lines, positions or dimensions of any part of the work under contract; (d) execute additional work; (e) vary the programme or the order of the work under the contra* (f) execute any part of work under the contract outside normal or agreed upon working hours; and the contractor shall carry out such variation, and be bound by the same conditions, so far as applicable, as if the variation was part of the work under the contract originally included therein. The extent of all such variations shall not, without the consent of the contractor, be such as to increase the moneys otherwise payable under the contract to the contractor by more than a sum which is the percentage stated in the annexure A of the contract sum, or if not stated, by a reasonable amount. No variation shall vitiate or invalidate the contract, but the value of all variations shall be taken into account and the moneys otherwise payable under the contract shall be adjusted as provided under cl. 40.4.' It appears, from the judgement, that no percentage had been inserted in annexure A, and the contract was therefore construed on the basis of the term 'by a reasonable amount'. In the new plans, excavation was increased by twenty per cent; sewer length was increased from 840 metres to 1181 metres; manholes from nineteen to twenty-seven, requiring a ninety per cent increase in concrete;

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house connections had increased from forty-seven to ninety-one and the new design included one hundred and sixty metres of excavation below four metres deep which was not shown on the original plans. The contract price was $30867.40 and the revised contract price was $43 200. The contractor argued that the change in design was not a variation permitted by the contract and sought to be released from the contract rates and for payment to be on a quantum meruit basis. Held: In the circumstances the amended plans did not constitute a variation permitted by the original contract. In practice, where there are very wide variation provisions, and the rules for valuing variations allow for departure from the contract rates, it may be difficultto argue successfully that the works should be valued on a quantum meruit basis. There would have to be some compelling reasons which would have made it impossible for the contractor to continue on the basis of the original contract. A substantial increase in the value of work may not, on its own, be sufficient reason to escape from the contract rates.

5.15 Finance Charges: Remedies for Late Payment


In nearly all cases, contractors will allow something in their tender for finance charges on the working capital required to carry out the works. There may not be a positive cash flow until final retention is released. Whatever the contractor's anticipated cash flow, as a general rule, if the value of work increases, the additional financing ought to be recovered in the rates for variations (assuming that the finance costs are allocated throughout the rates for measured work). However, it is often the case that interim certificates do not reflect the true value of the original contract work including variations. In such circumstances the contractor will be incurring additional finance charges on the under-certified sums. Whilst significant changes have taken place in recent years to compensate contractors for the loss incurred as a result of increased finance charges in cases of default by employers, the commercial reality of the high cost, and potential loss, has not been recognised fully in many modern contracts or in the general law. A claim for finance charges on late, or under-certification, will have to be founded on a contractual provision, or for breach of contract. In the case of Morgan Grenfell Ltd v. Sunderland Borough Council and Seven Seas Dredging Ltd (1991) 51 BLR 85, it was held that clause 60(6) of the ICE fifth edition enabled the contractor to claim compound interest on amounts which were included in a statement under clause 60(1) if the engineer failed to certify and it was subsequently found that the amounts ought to have been certified.

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However, in Secretary of State for Transport v. Birse-Farr Joint Venture (1993) 26 BLR 36, Mr Justice Hobhouse said:
'The opinion which the engineer is required to form and express in his certificates is a contractual opinion. It must be a bona fide opinion arrived at in accordance with the proper discharge of his professional functions under the contract. In sub-clause (3) there is an express reference to "the amount which in his opinion is finally due under contract." It is implicit in subclause (2) that the sum certified is that which, in his opinion, he considered to be due under the contract as an interim payment under that month. If it should be the case that the engineer's opinion is based on a wrong view of the contract then it can be said that he has failed to issue a certificate in accordance with the provisions of the contract. This was the case in the Farr case [Farr v. Ministry of Transport [I96011 WLR 9561. Therefore, leaving on one side all question of bad faith or improper motive - and none is suggested in the present case - a contractor who is asserting that there has been a failure to certify must demonstrate some misapplication or misunderstanding of the contract by the engineer. For example, it certainly does not suffice that the contractor should merely point to a later certification by the engineer of a sum which had been earlier claimed but not then certified. '

Where the engineer has certified and the employer fails to pay on time, clause 60(7)of the ICE sixth and seventh editions, clause 60.10 of the 1987 FIDIC fourth edition and clause 14.8 of the 1999 FIDIC contracts expressly provide for finance charges to be paid. The case of Borough of Kingston-upon-Thames v. Amec Civil Engineering [I9931 35 ConLR 39 almost got to grips with the issue as to whether, or not, finance charges could be considered as part of the cost. Amec's claim for finance charges had been rejected on the same grounds as those given in Secretary of State for Transport v. Birse-Farr Joint Venture. Amec argued alternatively that finance charges were part of the cost. His Honour Judge Richard Havey QC stated:
'Two questions arise: first, whether interest on any balance found due to the contractor, calculated from the date when that balance could or ought to have been certified, is recoverable as a financing charge representing a cost, or part of a cost, recoverable under a relevant clause of the contract; and, second, whether any interest claimed as a financing charge representing a cost, or part of a cost, recoverable under a relevant clause of the contract continues (whether compounded or not) beyond the date when certification or payment could or ought to have been made. The first question covers the whole of the amount of interest claimed. My answer to that question is that such interest is not recoverable, since no clause of the contract provides for its recovery. The second question seems to me to be academic, since the amount of such interest, if any, is indeterminate having regard to the terms of the Commercial Settlement. Moreover, interest on that basis is not claimed in the points of claim. Mr Stimpson [for the plaintiffs]submitted that

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there was enough material before the arbitrator for him to award an appropriate sum under this head, and that, if necessary, the case should be remitted to him for determination o f that sum. I reject that argument. Such determination would involve re-opening the Commercial Settlement.'

If there had been no commercial settlement and the argument had been included in the points of claim, perhaps a definitive answer would have been forthcoming. However, this case did not appear to deal with the finance charges on the 'prime cost' from the date when the cost was incurred until the date when it ought to have been certified. This is part of the contractor's 'secondary cost' whether, or not, the engineer certifies promptly (see Rees and Kirby Ltd v. Swansea City Council (1985), infra). In any event, the form of contract in this case was the ICE fifth edition where the definition of 'cost' is not so widely defined as in the sixth and seventh edition and the FIDIC contracts. In the case of Amec Building Ltd v. Cadmus Investments Co Ltd [I9961 51 ConLR 105, the court held that under a JCT contract it was proper for simple interest to be awarded from the date of under-certification. Where delay and disruption occur, the interest on the cost, or on the loss and/or expense, may be claimed as part of the cost or expense. This was held to be the case in Rees and Kirby Ltd v. Swansea City Council (1985) 30 BLR 1. A diagram illustrating interest or finance charges from the date of expending the 'primary cost' until payment is received in given in Figure 5.26. The first element [Fl] represents the finance charges occurring from the date of incurring the cost until the date of certification (the sums approved in Rees and Kirby Ltd v. Swansea City Council (1985)).The second element [F2] represents the finance charges due to late payment of certified sums under a provision in the contract (such as ICE or FIDIC) or for breach of contract (infra). The Late Payment of Commercial Debt (Interest) A d of 1998 may be of assistance with respect to late payment of certificates in the UK. Many other jurisdictions have provisions for payment of interest on late payment. Whilst it is not usually essential to include a statement showing the amount of interest on delay and disruption claims, it is a practice which should be encouraged, if only to prompt the architect or engineer to deal with the matters in the earliest possible interim certificate.
Remedies for late payment
Many contractors suffer from late payment of not just one certificate but of several or even all certificates. In international contracting and in domestic contracts overseas, it is not uncommon to experience several unpaid

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Finance charges as part of direct costs (loss andlor expense)

Payment received

E l
1st Application

Finance charges for breach of contract (payment provisions) Certificate 2nd Application 3rd Application

Payment due

Figure 5.26 Finance charges

certificates at one time involving several million pounds. Apart from the extreme course of action to terminate the contractor's employment (which contractors are usually reluctant to do), what other redress is available to contractors in these circumstances? In most countries, there are no legal rights to suspend work or slow down the progress of work. FIDIC, in its 1987 fourth edition of the Red Book and in its 1999 Red, Yellow and Silver Books, has introduced provisions to enable the contractor to suspend work or slow down his progress (subclause 69.4 of the 1987 fourth edition of the Red Book and sub-clause 16.1 of the 1999 Red, Yellow and Silver Books). Subject to the contractor giving twenty-eight days' (1987 Red Book) or twenty-one days' (1999 contracts) notice of his intention to suspend or slow down the progress of the works, if the employer fails to pay by the expiry of the notice period, the contractor may then suspend or slow down the progress of the work. Following such suspension or slowing down, the contractor is entitled to: an extension of time; additional costs; and in the case of the 1999 contracts: a reasonable profit. These rights and remedies are without prejudice to any other rights (finance charges and/or termination).

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The 1999 FIDIC Green Book contains similar but much simplified provisions (sub-clauses 7.3, 10.4 and 12.2).

5.16 Cost of Preparing the Claim


In the vast majority of cases, the cost of preparing the claim is not a recoverable cost. However, there are circumstances in which the cost of preparing claims may be recovered:

If each claim is prepared by the contractor's staff, as and when they arise during the contract, the salaries and other costs of the staff will usually be included in the site or head office overheads and may therefore be included in the general claim for prolongation. If, in spite of all requests for an assessment of the amount of the claim (and provided that the contractor has given all particulars in accordance with the contract) no assessment is made within a reasonable time (and particularly if it has not been made within the period of final measurement or other specified contractual time frame), the contractor would be justified in preparing his own claim and may be entitled to reimbursement - see James Longley & Co Ltd v. South West Regional Health Authority (1985) 25 BLR 56 at page 57: 'The costs of preparing a final account may be recovered as damages in a suitable cases, e.g. for breach of an obligation on the part of an employer to provide a final account. . . .' This may include the contractor's own managerial time (provided that it is not included in overheads): Tate & Lyle Food Distribution Ltd and Another v. Greater London Council (supra). Where certain work is done in connection with preparing a case for arbitration: James Longley & Co Ltd v. South West Regional Health Authority (supra).The cost of preparing unnecessary evidence may not be allowed.
5.17 Assessment and Evaluation
Assessment and evaluation of delay and disruption claims will depend on the pricing and accounting policy of the contractor. The following should be established:

The tender
How are the overheads and profit distributed in the tender? Loading rates or preliminaries may merit adjustments to any sums calculated using a formula.

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Are all of the site overheads (preliminaries) priced in the preliminaries sections of the bills of quantities? If part, or all, of the preliminaries are included in the rates for measured work, some analysis may have to be done to ascertain the sums to be used as a basis of calculating time-related elements (if it is appropriate to use the contract rates for variation delays). An adjustment may have to be made to account for additional preliminaries recovered in the rates for variations (whilst there are circumstances where no adjustment should be made for overheads and profit recovered in variations, an adjustment will usually be justified for any preliminaries recovered in variations).

Accounting practice
Are head office overheads charged to the project? If so, on what basis? Time records? Percentage allocation? Ad hoc? Unusually high allocation of costs may have to be justified. Are finance charges included in general overheads? If so there may be duplication with separate claims for finance charges. This may be overcome by deducting interest and finance charges from the general overheads and making a separate assessment of the finance costs on the average working capital required for the delayed project (excluding claims). Having established the above, the assessment and evaluation of the claim can proceed without fear of unnecessary duplication or omission. It is important that all facts, evidence and data upon which any calculations are based are collected and bound in an annotated appendix to the claim. In the narrative of the claim, the author should have set out the basis of the claim, giving reasons for any particular method which has been adopted (such as an explanation as to why a particular formula has been used to calculate overheads and profit and any adjustments which have been made). It is sometimes helpful, and persuasive, to give financial information in tabular and graphical form. This will facilitate a better understanding of the nature of the contractor's claim and may assist in obtaining an early settlement. Each head of claim should state the source documents used (referring to the appropriate appendix) and any assumptions made for the purposes of calculation or assessment.
5.18 Summary on Presentation of Claims for Additional Payment

Similar guidelines to those given for extensions of time are applicable to claims for additional payment. In spite of the fact that contractors may not

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be reimbursed for preparing a claim, it is usually in the contractor's interest to do so at the earliest opportunity. The temptation to wait until extensions of time are made before submitting a claim should be resisted unless there is real possibility that this will sour relationships beyond repair. In any event a claim should be prepared (even if not submitted) so that the magnitude of the loss or additional cost can be made available to management. The sooner the opposition are made aware of the amounts which are likely to be claimed, the better the chances that funds will be put aside to meet them. In addition to the details and particulars mentioned with regard to extensions of time (supra), the following may be necessary: details of the effects of any delay or disruption on all activities in parallel and subsequent to the circumstances giving rise to the claim; an introduction to the claim giving the contractual provisions under which the claim is being made; a summary of notices and particulars given during the contract; diagrammatic illustrations where appropriate; references to recognised authorities and case law relied upon; additional, or alternative claims under the general law (if applicable). a statement setting out the amount of the claim. Presentation will depend on the type of claim. If several individual claims are made during the course of the project, these need not necessarily be couched in legal language which is sometimes seen in formal submissions.

5.19 Formal Claim Submission

If individual claims are dealt with and settled promptly during the contract, a formal submission setting out the contractual basis and detailed analysis of the contractor's rights and entitlements will not be necessary. However, if settlement is not reached on these claims, the contractor is faced with preparing a document which, it is hoped, will lead to an amicable settlement at the earliest possible time. This type of claim submission may take a form almost approaching pleadings for arbitration. Some contractors spend considerable time and effort in negotiations which fail because of the lack of a sound, comprehensive and persuasive submission which sets out the contractor's claim and the basis upon which the claim is made. The sooner a formal submission is made, the earlier a settlement can be reached or proceedings can commence. A formal claim submission will include:

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Introduction: contract particulars


Names of the parties; description of the works; details of tender and acceptance; the form of contract and any amendments thereto; the contract sum; dates for commencement and completion; phased completion (if applicable); liquidated damages for delay; the programme.

Summary of facts
Date of commencement and practical completion; dates of sectional or partial completion (if applicable); summary of applications for extensions of time; extensions of time awarded; summary of claims submitted; final account and claims assessed (if any); amount of latest certificate and retention; payments received; liquidated damages deducted (if applicable).

Basis of claim
Contract provisions relied upon; common law provisions; contractual analysis and explanation of the basis of the claim.

Details of claim
Full details of every matter which is the subject of the claim. Each separate issue should be carefully set out in a logical format. Key dates, events, causes and effects, references to relevant documents and the like should form the basis of a narrative which fully describes the history of the project and the effects on progress, cost and completion. It is important to distinguish between the causes and effects of delay (and/or disruption), extensions of time and the financial effects of delay and/or disruption. Wherever possible, diagrams, programmes, tables and the like should be included in the narrative (or in an appendix). The extensive use of schedules can be invaluable.

Evaluation of claim
Each head of claim should be calculated, step by step, with explanations and reasons for the methods adopted. Supporting source documents (from which financial data has been used in the evaluation of the claim) should be given in an appendix, or listed, so that the recipient may examine such documents at the contractor's office when considering the claim.

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Statement of claim

A brief statement setting out the claimant's alleged entitlements and relief sought, such as extensions of time; sums claimed; repayment of liquidated and ascertained damages (if applicable).
Appendices
Copies of all documents referred to in the claim; programmes; diagrams; schedules; financial data.

Response t o Claims: Counter-claims

7.1 General Policy


No one likes to be on the receiving end of a claim. From the employer's point of view it will mean additional cost by way of loss of revenue and/or additional payments to be made to the contractor. From the point of view of the professional advisers to the employers, it may reflect on the firms' competence in preparing contract documents and on their skills in contracts administration. They may also be faced with additional costs of administration which cannot be recovered from the employer. When contractors receive claims from subcontractors, they will be mindful of the fact that the claim may arise out of their poor organisational skills, in which case they will not be able to obtain reimbursement from the employer or other subcontractors. Nevertheless, valid claims are a fact of life in modern construction projects. They are an essential feature of small and large contracts and the machinery to deal with them should be regarded as an important element of control. Prompt submission of notices and particulars, followed by a considered response from the recipient as soon as possible will usually facilitate early remedial action and settlement. The employer's professional advisers will normally be required to act as independent valuer or certifier under the contract and/or advise the employer on the contractor's rights and entitlements. In Pacific Associates Inc and Another v. Baxter and Others (supra - Chapter I), it was held that the contractor had no recourse against the engineer if he should fail to certify properly and act fairly. The contractor would, however, be able to recover from the employer. Consultants should therefore be aware that they are likely to be the target for negligence claims from the employer if the contractor's claims arise out of their failure to value or certify in accordance with the conditions of contract. Employers should also be aware that their interference with the impartial certifying function of their consultants will be self-defeating (Morrison-Knudsen v. B.C. Hydro & Power and Nash Dredging Ltd v. Kestrel1 Marine Ltd, Chapter 1- supra).

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Consultants who fend off claims to avoid criticism of their own performance may only be compounding the problem and laying themselves, and the employer, open to greater claims from contractors. Delay in recognising a claim and responding to it may cause any hope of effective remedial action to be lost. Poor advice given by consultants to the employer upon which the employer relies to embark upon the road to litigation or arbitration which could otherwise have been avoided may lay the consultants open to claims from the employer. If claims are to be dealt with effectively, employers and their professional team should decide on policy at the outset. There should be a system of referral to experienced staff who are not responsible for the day-today administration of the project. Advice from an independent consultant may be appropriate from time to time. A policy statement should include the following: consultation as soon as the first notice from the contractor is received (or as soon as any member of the professional team recognises a potential claim); delegation of responsibilities to verify facts; consultation to determine the validity, merits and substance of the claim; consultation to analyse the causes and effects of the matters which are the subject of the claim; recommendations on the quantum of the claim; content of written response and necessary certificates to be issued. Whatever policy is adopted, the timing and content of the first response to a claim situation may be critical to its successful conclusion with the minimum exposure to delay and additional cost. It is important that the response should reflect the opinion of the certifier (which may take into account the various matters discussed during consultations with other members of the professional team and the opinions of persons to whom the claim may have been referred). The content should be sufficiently detailed to show that the matter has been properly considered and the door should be left open to allow the contractor to submit further arguments or facts in support of the claim.

7.2 Extensions of Time


Prompt response to any situation which may jeopardise progress and completion of the works by the due date is necessary for practical and contractual reasons. From a practical point of view, it is essential to have a valid programme which is consistent with progress and the latest extended completion date. Without continual review which takes account of actual

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delay and entitlement to extensions of time, there is no means to plan future issuance of details and instructions and there is no yardstick by which to measure hture delays. Extensions of time granted several months after the event (or even several months after completion of the project) are of no practical use and any opportunity which may have existed to reduce the delay may have been lost. From a contractual point of view, time to exercise the powers to grant an extension may be critical to the employer's rights to levy liquidated damages (Miller v. London County Council, Chapter 1- supra). Some doubt has been expressed on the validity of the argument that if extensions of time are not granted within the time contemplated by the contract, the employer's rights to liquidated damages are extinguished. In Temloc Ltd v. Erril Properties Ltd (Chapter 1- supra), the employer argued that since the architect had failed to grant an extension of time within the twelveweek period provided in clause 25.3.3 of JCT80, the employer could not recover liquidated damages but he could recover general damages in lieu of liquidated damages (which in this case had been nil in the appendix to the contract). The judge took the view that the twelve-week period was directory only and not mandatory. This view has been highly criticised by distinguished authors on construction contracts. However, since it was the employer who was seeking to rely on this provision in order to recover damages which it could not otherwise claim under the liquidated damages provision in the contract, it is not surprising that the judge did not see fit to allow the employer to benefit from his own architect's failure to grant an extension within the time limits laid down in the contract. If this practice was condoned by the courts, nothing would prevent employers from encouraging architects to delay granting an extension of time if the general damages were found to be greater than the liquidated damages specified in the contract. It is submitted that the contractor would still be able to succeed in arguing that the employer could not rely on the liquidated damages provisions in the contract, if the architect did not grant an extension of time within the twelve-week period, notwithstanding the judge's view in Temloc v. Erril Properties. In a recent Australian case, it was held that the employer had the option to levy liquidated damages (if the architect issued the necessary noncompletion certificate) or, if no certificate was issued, the employer may levy general damages which may exceed the amount stipulated for liquidated damages: Baese Pty Ltd v. R.A. Bracken Building Pty Ltd (1989) 52 BLR 130. The commentary to the case (at pp. 131 and 132) suggests that the judgement is of limited application and should not be regarded as creating a precedent giving rise to a general right to opt for liquidated damages or general damages. The requirement to grant an extension of time within the periods con-

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templated by the contract does not mean that the architect's, or engineer's opinion must be the right one. The architect, or engineer, need only consider the delay and grant, or refuse to grant, an extension of time within the requisite period. Provided that there was a genuine attempt to deal with the matter, and the contractor was notified of the extension, or reasons for refusing an extension, within the period, then the contractual provisions will be satisfied and the employer's rights to rely on the liquidated damages provisions will be preserved. A refusal, or insufficient extension, which is not based on a genuine attempt to assess the delay (but merely to preserve the liquidated damages provisions), may not be effective. No response, or protracted exchanges of correspondence with no conclusion may not preserve the employer's rights to liquidated damages if it should be subsequently held that an extension of time ought to have been granted at the appropriate time. The case of Aoki Corp v. Lippoland (Singapore) Pte Ltd (19951 2 SLR is likely to be regarded as introducing a change to the existing ground rules. This Singapore decision dealt with the peculiar wording of clause 23.2 of the SIA (Singapore Institute of Architects) form of contract in which the architect is required to give an initial intimation of his decision as to whether, or not, a delaying matter deserves an extension of time, in principle within one month of the contractor's notice of delay, without having to give his opinion on the amount of the extension in his initial intimation. The contractor argued that the architect's failure to give his initial decision in principle within one month had the effect of the architect losing his power to grant an extension, that time (for completion) was 'at large' and that the employer lost its rights to levy liquidated damages. The judge found in favour of the employer. That is to say, the architect's initial intimation was not given too late in the circumstances of this particular case. Certainly, the wording of clause 23.2 of the SIA form does not make it a condition precedent to the architect's rights to grant an extension of time that the initial intimation should be given within one month. That much can be gleaned from Bremer Handelsgesell-Schaft M.B.H. v. Vanden Auenne-lzegem I?UB.A. (infra), in which the judge stated that there must be express wording to bar an entitlement or right if notice was not given within the prescribed time. However, the Singapore case did not deal with the issue as to when the extension of time itself should ultimately be granted. In the circumstances of this case, the judge took the view that the initial intimation (given three months after completion of the works) was not too late. However, it is evident that an initial intimation given two-and-a-half years after completion quoted in a reference to an earlier case of Tropicon Contractors Pte Ltd v. Lojan Properties Pte Ltd [I9911 2 M U 70 (CA); (1989) 2 M U 215 (dist)was given too late. Notwithstanding the Aoki v. Lippoland deci-

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sion, an architect or engineer who delays any decision regarding an extension of time therefore runs the risk of jeopardising the employer's rights to levy liquidated damages. It would seem at least arguable that the case of Aoki v. Lippoland has not affected the existing ground rules for most other forms of contract, but it must be said that there may be a shift in policy on the application of extension of time provisions. What appears to be emerging from the Singapore decision is an acceptance, by the courts, that if an extension of time is not granted within the time contemplated by the contract, then the contractor may be entitled to damages (the costs of acceleration), rather than allowing time to be at large. Clause 25 of the JCT80 conditions requires the architect to state the relevant event which he has taken into account when making an extension of time (without necessarily allocating periods against each event). Clause 2.3 of the JCT Intermediate for IFC84 does not require the architect to allocate periods against each relevant event. Under JCT80, the architect's response to any notice of delay is required within twelve weeks of receipt of the contractor's notice or particulars, or before the completion date. Under IFC84 the architect's response is required as soon as he is able to assess the extension. In both cases there is provision to review the extensions of time within twelve weeks of practical completion. Both the ICE conditions and the 1987 fourth edition of FIDIC (clause 44) are almost noncommittal as to when the engineer should respond to a claim for extensions of time. ICE requires a response 'forthwith', and FIDIC 'without undue delay' if the engineer considers that an extension is due. The NEC contemplates a considerable amount of co-operation between the contractor and the project manager with respect to notification and assessment of 'compensation events'. Sub-clause 64.3 states:
'The Project Manager notifies the Contractor of his assessment of a compensation event and gives him details of it within the period allowed for the Contractor's submission of his quotation for the same event. This period starts when the Project Manager's assessment becomes apparent.'

The 1999 FIDIC Red, Yellow and Silver Books require the engineer or employer (as the case may be) to respond within forty-two days after receiving the contractor's notice and particulars (sub-clause 20.1). A response may be with approval or with disapproval and with detailed comments. Sub-clause 3.5 requires the engineer (within the forty-two days) to consult with each party in an endeavour to reach agreement or, failing agreement, he must make a fair determination. Under the Silver Book, where the employer deals with such matters (as there is no engineer), the contractor must register his dissatisfaction with the employer's assessment of his claims

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within fourteen days or he must give effect to it. The text of this clause could have been clearer and there is at least the possibility that the employer's determination could become final and binding if the contractor fails to register his dissatisfaction within fourteen days. If the contractor registers dissatisfaction [within fourteen days], the dispute may be referred to adjudication. Under the 1999 FIDIC Green Book, no time limits are laid down within which the employer must respond. The contents of a response to a notice or claim for an extension of time are important. Whilst it is not usually necessary to give periods of extension for each separate cause of delay (save to the extent that it may be required separately for a claim for loss and/or expense pursuant to clause 26.3 of JCT80), it is good practice to do so for the following reasons: it enables the contractor to be fully aware of the delays which have been considered (within the time limits for granting an extension); it facilitates agreement on some of the delays and extensions of time granted therefor, and enables both sides to concentrate on resolving the contentious delays; if facilitates agreement on delays which may, in any event, have to be quantified in order to establish the amount of additional payment; it enables the contractor to identify which delays apply to which subcontractors so that consistent extensions of time can be granted under each subcontract. Some common problems which arise are:

Late information
Information may be issued late (having regard to the programme) but not actually cause delay to the progress of the works because the contractor is not ready to commence the work which is affected by the late information. Is the contractor entitled to an extension of time? Factors to be considered include the following: Is there a lead time? That is to say, does the contractor have to order materials or arrange for the work to be done by a subcontractor? The architect, or engineer, may be already in delay prior to any delay by the contractor and would therefore not have been in a position to anticipate the site progress. It may well be that the information was required before the contractor commenced the affected work and the contractor had no need to commence prior to receiving the information (see Figure 7.1). Is the contractor in delay for matters which would justify an extension, or is he being dilatory?

----D1 D2 D3 D4

ORIGINAL PROGRAMME DEPENDING ON INFORMATION PROCUREMENT PERIOD

1 7 7 7 7 7 7 7 2 1 ACTIVITY

ORIGINAL DATE INFORMATION REQUIRED ACTUAL DATE INFORMATION ISSUED CONTRACTOR DELAY (BUT COMPLETES ACTIVITY IN TIME TO PREVENT DELAY TO NEXT ACTIVITY) DELAY IN ISSUANCE OF INFORMATION DESIGN DELAY OCCURRING PRIOR TO CONTRACTOR DELAY DELAY TO COMPLETION

Figure 7.1 Late information concurrent with contractor's delay

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It may be that even if no extension was justified, the employer could not in any event have been in a position to give the information earlier and could not therefore have obtained use of the project any earlier than the time required to complete the remaining work affected by the late information. The best advice is not to rely on the contractor's delays to put off issuance of information for construction. If it is unavoidable, the contractor may be entitled to the benefit of the doubt and the employer may have no claim against the contractor.

Information and variations issued after the completion date

If the contractor is in culpable delay and liable to liquidated damages, further delay caused by information and instructions issued after the completion date has passed may be difficult to deal with within the contractual machinery. In such circumstances, contractors will seize the opportunity to establish extensions of time for the full period up to the date when the delay ceased to affect the progress of the works, plus an allowance to complete the remaining works. Much will depend on the reasons for the late information or variation (see Chapter 5 - supra) and the terms of the contract. If the contract does not provide for extensions of time after the completion date has passed, or if the provisions allow for extensions of time without presetvation of the employer's rights to liquidated damages, the employer and his professional advisers will need to give careful consideration to the need for giving any instructions at all, and if they cannot be avoided, what should be done to protect the employer's interests? If the architect, or engineer, is of the opinion that an extension of time can, and ought to be made, then an extension should be made having regard to the facts and circumstances. If the architect, or engineer, is of the opinion that no extension can be made, then the contractor should be advised accordingly. Except in the most straightforward of cases, these circumstances may require expert advice on the meaning of the contractual provisions and the period of extension which may be justified (see Balfour Beatty Building Ltd v. Chestermount Properties Ltd in 5.3 - supra).
Omission of work
The provisions of JCT8O contemplate an allowance for any variation, as an omission of work which produces a saving in time, when considering the period of any extension of time which may be granted. Clause 25.3.1.4 requires the architect to state:

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'the extent, if any, to which he has had regard to any instruction requiring as a Variation the omission of work issued since the fixing of the previous Completion Date'. [Emphasis added] The architect may also, after the completion date, f i x an earlier completion date than that previously fixed if it should be reasonable to do so having regard to omissions ordered after the date of fixing the previous completion date - clause 25.3.3.2. Whether or not there should be any omissions, the architect is required to grant an extension of time within twelve weeks of the contractor's notice, or before the completion date, whichever is earlier. Even if notices and particulars and extensions of time are given without delay, the contractual provisions may not allow all omissions to be taken into account. There may be a period when omissions occur but which cannot be taken into account (see Figure 7.2). While it is reasonable to have provisions to make allowance for omissions, it appears that the JCT80 provisions could be improved to catch other omissions whjch occur after the delaying matter which was the subject of the previous extension of time had ceased to operate. It should also be borne in mind that, where there is delay in granting an extension of time (even if it should be granted within the requisite period), the contractor may issue a programme which is a fair reflection of the extension due with the exception of any omissions. It would be good policy to bring the omissions to the attention of the contractor before work has progressed in accordance with the revised programme to the extent that the benefit of the omission is lost. In order to prevent these circumstances arising, where the architect is of the opinion that there is a case to make any allowance for omissions, he should address the matter without delay in consultation with the contractor so that there is no doubt as to the reasonableness of any allowance. In any event, an allowance should only be made where the omission is on the critical path, or is of such a nature that resources (previously required to execute the omitted work) can be diverted to execute work on the critical path and that there will be a benefit in time. It is insufficient to make a subjective judgement without a proper analysis of the programme and progress to establish that a saving in time was justified. It is important to note that omissions to have the work done by others is a breach of contract and may not qualify to be taken into account (see also Chapter 1 - supra). Concurrent delays Many architects, and engineers, refuse to grant extensions of time for qualifying delays when the contractor is himself in delay at the same time.

I
I
D1 1//////~
\ \

1
01 I=\\\Y

ORIGINAL CONTRACT PERIOD EP 1 FIRST EXTENSION

! : = QUALIFYING DELAYS D3

N1 D2
\ \

E1 02 N2
D3

I I IEP2
E2

SECOND EXTENSION E3

: :] : :3 =
N3

= NOTIFICATION AND
PARTICULARS GRANTING OF EOT

V///A
\

\.

03
N3

I EP3
THIRD EXTENSION

EP3 01

= EXTENDED
=

h\Y

PERIOD ETC. 1st OMISSION (NOT QUALIFYING FOR CONSIDERATION)

02

= 2nd

1 FEP

FINAL EXTENSION 03
Pvlod wlthln whlch axtanalon of ttma ahould ba grantad

OMISSION (QUALIFYING FOR CONSIDERATION IN EXTENSION GRANTED - E2) (QUALIFYING FOR CONSIDERATION IN EXTENSION GRANTED - E l )

= 3 r d OMISSION

NOTE: OMISSIONS INSTRUCTED BEFORE PREVIOUS GRANTING OF AN EXTENSION OF TIME MAY NOT QUALIFY FOR CONSIDERATION WHEN ESTIMATING SUBSEQUENT PERIOD OF EXTENSION

FEP

= FINAL EXTENSION
OF DELAY

1777771 PERIOD

b m TlME SAVING DUE


TO OMISSION NETT EXTENSION

Figure 7 . 2 Omission of work - clause 25.3.3.2of JCT80

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Sometimes this is justified, but very often an extension of time is necessary (see Chapter 5 - supra). Once the contractor has given notice of delay, or if the architect, or engineer, is aware of delays on the part of the contractor, it is important that these delays are monitored. The consultants responsible for granting extensions of time and/or certifying additional payment arising out of delay owe a duty of care to the employer to ensure that the contractor is not given any more time or money than is reasonable in all of the circumstances. They will have to consider those matters described in Chapter 5 (supra). In order to ensure that the employer is not exposed to additional costs which should not rightly be borne by the employer, the architect, or engineer, will have to be aware of delays by the contractor at the earliest possible time. Once aware of these delays, it is important to keep contemporary records. Any response to claims for extensions of time should state which delays (by the contractor) were concurrent with qualifying delays and which (if any) were considered to be delaying completion of the works. This may not necessarily reduce or affect the extension of time to which the contractor is entitled, but the contractor will be aware of the fact that the architect, or engineer, is well informed on the progress of the works. 7.3 Claims for Additional Payment While a prompt response to claims for extensions of time is essential for practical reasons, and to keep the liquidated damages provisions alive, a response to claims for additional payment is not usually subject to the same urgency. Nevertheless, provided that the contractor gives notice and particulars in accordance with the contractual provisions, assessment of the sums due and certification for payment should be done as soon as possible. It is often in the employer's interests to deal with these claims as early as possible. Agreement of claims and settlement from time-to-time during the course of the project reduces the contractor's ability to collect all outstanding claims into a 'global claim' which may be little more than a statement claiming the difference between the certified value of all completed work and the actual cost. Many contractors may prefer to wait until the end of the contract before submitting a formal claim. If that is the case, the employer may not be disposed towards any attempt to encourage the contractor to submit his claims as they arise so that they can be settled and set aside. In such circumstances, the employer's professional team should be aware of potential claims and make whatever assessment they can from their own investigations and

220

Construction Contract Claims

records. The employer will be interested in knowing the amount of the potential claim, but no action should be taken to effect payment before the contractor has complied with the contractual procedures (unless a deduction in the contract price may be justified). Once the contractor's particulars are received, the assessment can be modified in the light of such particulars and a prompt settlement may be possible. If the contractor has gone to a great deal of time and trouble to submit a well thought-out claim, with full particulars and sensible calculations, then a written response merits a similar amount of detail, indicating where there is agreement and reasons for any adjustments which, in the opinion of the architect, or quantity surveyor, or engineer are considered to be appropriate. If, on the other hand, the contractor's submission is poorly argued and presented, the temptation to dismiss the claim out of hand should be resisted. A response should explain why the submission is unsatisfactory and it should give the contractor the opportunity to clarify, or amend the claim. Further particulars may be requested, and these should be specified. If it is a frivolous, or unfounded claim, the contractor should be politely told so. If the claim is justified, and has merit, it is unlikely to go away, in which case it may be appropriate to give the contractor some guidance as to presentation. It may well be that the matter which is the subject of the contractor's claim is one which ought to be dealt with as a variation, thereby giving the engineer, or quantity surveyor, the scope to deal with the matter within the rules for valuation of variations. Provided that the employer is not disadvantaged, this approach may be the most acceptable to all concerned. The NEC conditions require co-operation and an early response to all compensation events by the project manager within the time provided in sub-clause 64.3 (see above). The 1999 FIDIC conditions require the engineer to consult with the employer and the contractor and to respond within forty-two days in accordance with sub-clause 20.1. Under the Silver Book, the employer deals with such determination and this may become binding i f the contractor fails to register dissatisfaction within fourteen days (see above).
7.4 Counter-claims: Liquidated Damages: General Damages

Many claims which may be levied by the employer against contractors are overlooked or are not considered to be worth pursuing. This may be because employers are fearful that such claims could be the reason for large claims by contractors which may otherwise have been waived. Claims which may be levied against contractors include those arising out of defective work and failure by the contractor to execute work expressly

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authorised under the terms of the contract. Some claims may be made under the terms of the contract and the amounts of the claims may be set off against interim or final payments due to the contractor from the employer. Others may be common law claims. The most common counter-claim against contractors is the deduction of liquidated damages for late completion of the works (or if provided for in the contract, for late completion of sections of the works). In order to be enforceable, a liquidated damages provision must be unambiguous and the sum stated in the contract must be a genuine pre-estimate of the employer's likely loss, estimated at the time of making the contract in the event of delay to completion. If the sum stated is a penalty, the employer cannot rely on the clause (unless the law expressly permits penalties). It will not be deemed to be a penalty merely because the employer's actual loss is less than the liquidated damages (for example, if the liquidated damages were based on realistic anticipated rents at the time of making the contract, and the market had collapsed by the time the works were complete, the contractor could not argue that the sum was a penalty). The employer's professional team may have to advise the employer on the amount of liquidated damages to be inserted in the contract and on the contractor's potential liability for liquidated damages when the contractor is in delay during the course of the contract. However, consultants should not use the threat of liquidated damages in any response to a contractor's delay claim, even if it is clear that the contractor is in default. Such matters should be for the employer alone, and then only when the consultants have properly considered all delays which may give rise to an extension of time. JCT63 required the architect to issue a certificate stating that in his opinion the works ought reasonably to have been completed by the date for completion as a precondition to the employer's rights to deduct liquidated damages - clause 22. Having regard to circumstances which may have arisen during the course of the contract (such as delay by the employer which may not have qualified for an extension of time) the architect may have had good reason not to be able to express such an opinion, in which case no certificate could be issued and no liquidated damages could be deducted. JCT80 only requires the architect to certify that the contractor had failed to complete the works by the completion date (as a fact) before the employer can deduct liquidated damages - clause 24. Many other forms of contract do not require a certificate of any sort as a prerequisite to the employer exercising its rights to deduct liquidated damages. It is often argued that the architect cannot certify that the contractor has failed to complete the works by the completion date unless and until he has considered all of the delays for which an extension of time may be granted:

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Construction Contract Claims

Token Construction Co Ltd v. Charlton Estates Ltd (1976) 1 BLR 48. If, however, a further extension of time is granted after liquidated damages have been deducted, the employer must repay the liquidated damages for the relevant period of further extension (for example, clause 24.2.2 of JCT80). The contractor is entitled to interest on the liquidated damages withheld, and subsequently repaid: Department of Environment for Northern Ireland v. Farrans (1981) 1 9 BLR 1. Clause 47(5) of the sixth and seventh editions of the ICE conditions of contract provides for interest on liquidated damages to be repaid to the contractor as a result of further extensions of time. If there are no provisions in the contract for liquidated damages, the employer may be able to levy a claim for general damages. Where there is a provision for liquidated damages for late completion of the works, but there are no provisions to deduct liquidated damages for late completion of each phase (assuming that the contract contemplates phased completion), the employer may have a claim for general damages for late completion of any phase: Mathind Ltd v. E. Turner & Sons Ltd (see Chapter 3 - supra). Where the employer has lost his rights to liquidated damages, he may be able to claim general damages for late completion (see Chapter 1- supra). General damages may arise if the employer suffers loss as a result of any breach of contract by the contractor. Provided that the nature and cause of the loss are not identical to those which may be recovered under a liquidated damages provision, then general damages may be recoverable in addition to the liquidated damages for late completion. Some tailor-made conditions of contract provide for liquidated damages and general damages for delay. Provided that the nature of the damages are not identical (thereby duplicating the claim for delay), provisions of this kind may be enforceable. For example, if the liquidated damages were a genuine pre-estimate of the loss of revenue and direct costs of supervision during the period of overrun, a separate claim to recover delay costs levied by other contractors (who were delayed by the contractor) would not be a duplication of the same damages and may be recoverable in appropriate circumstances. The 1999 FIDIC Red, Yellow and Silver Books require the employer to give notice of any claims against the contractor as soon as practicable (subclause 2.5) and the engineer (the employer in the case of the Silver Book) is required to determine the claim in accordance with sub-clause 3.5. This procedure is a prerequisite to deduction from sums due to the contractor or payment from the contractor. Under the Silver Book, where the employer deals with such matters (as there is no engineer), the contractor must register his dissatisfaction with the employer's assessment of his claims within fourteen days or it becomes binding. If the contractor registers dissatisfaction within fourteen days, the dispute may be referred to adjudication.

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7.5 Claims Against Subcontractors


There is an increasing incidence of claims made by subcontractors against contractors and by contractors against subcontractors. Some forms of subcontract devised by contractors are aimed at precluding any claim at all from subcontractors and they attempt to provide for claims to be made against subcontractors on dubious grounds with little supporting evidence. Recent cases in the courts have identified the most unreasonable contractors in this regard. Notwithstanding the adverse publicity and understandable indignation expressed by various trade associations, the majority of contractors use recognised standard forms of subcontract and apply the provisions fairly. Where a subcontractor is in delay, or is disrupting the progress of the works, the contractor will naturally wish to recover any losses incurred from the defaulting subcontractor. Where there is only one subcontractor in delay, and there are no competing delays, it is possible to establish liability with relative ease. However, it is probable that there will be several delays occurring at the same time, in which case the contractor will be faced with the difficulties which have been mentioned in respect of concurrent delays in Chapter 5 (supra).Only the most careful attention to records and regular updating of programme and progress schedules will enable the contractor to establish liability and quantum of damages which may be recoverable from several subcontractors (and possibly from the employer) for what may be substantially the same period of delay. Where the contractor becomes liable to liquidated damages for late completion of the main works, he will seek to recover some, or all, of the damages from defaulting subcontractors. In the case of nominated subcontractors, this may not arise (for example, where the contractor is able to obtain an extension of time for delay on the part of nominated subcontractors). Nevertheless, the contractor may have a claim against the nominated subcontractor for the costs of prolongation which he could not recover from the employer. Apportionment in the event of delay by several subcontractors is almost bound to cause difficulty. Even where the contractor has been able to calculate the sum which is due from the subcontractor, the provisions for set-off in the subcontract may frustrate the contractor's ability to deduct the amounts due from payments which would otherwise be paid to the subcontractor. The general rule is that the contractor's rights to set-off at common law are not affected by the contractual provisions unless there is clear language in the contract to bar the general right of set-off: Gilbert Ash (Northern) Ltd v. Modern Engineering (Bristol) Ltd [I9741AC 689. However, where the terms are explicit, and the set-off provisions are exclusively laid down in the subcontract, the contractor's rights to set-off will be determined by the contractual provisions. An architect's certificate of delay or non-completion by a nominated sub-

224

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contractor may be a prerequisite to the contractor's rights to damages from the defaulting subcontractor under JCT8O. This can be troublesome, particularly where the architect refuses to give permission to grant an extension of time (for any reason) to a subcontractor and at the same time will not issue a certificate of non-completion against the subcontractor: Hong Kong Teakwood Limited v. Shui On Construction Company Limited (1984) HKLR 235. The Shui On case was, however, rather different from most situations found in the United Kingdom. In the first place, the provision in the Hong Kong equivalent of JCT63 to permit extensions of time for delay on the part of a nominated subcontractor had been deleted and, in the second place, the subcontract between Shui On and Hong Kong Teakwood contained a 'pay when paid' clause. An almost identical situation arose in Schindler Lifts (H.K.) Ltd v. Shui On Construction Company Limited (1984) 29 BLR 95. Here, the architect issued a certificate of nontompletion against the contractor, but not against the subcontractor. The employer deducted liquidated damages from the payment certificates issued in favour of the contractor after the certificate of non-completion. The payment certificates included sums in favour of the subcontractor. The contractor argued that he had not received payment from the employer, and since the obligation to pay the subcontractor did not arise until such time as payment was received from the employer, no payment was due to be made to the subcontractor. The Court of Appeal in Hong Kong found in favour of the contractor. This did not mean that the subcontractor had no remedy. There were provisions for arbitration in the principal contract and in the subcontract, and the disputes between the parties were capable of resolution in arbitration. The UK Construction Act 1996 outlaws 'pay when paid' in construction contracts in the UK. Section 113(1) states:
'A provision making payment under a construction contract conditional on the payer receiving payment from a third person is ineffective, unless that third person, or any other person payment by whom is under the contract (directly or indirectly), a condition of payment by that third person is insolvent.'

In addition to claiming all, or part, of the liquidated damages for late completion of the main works from a defaulting subcontractor, the contractor may also have a claim for other loss and expense, such as prolongation and/or disruption costs incurred by the contractor and by other subcontractors. The quantification of such claims where there are several competing delays is bound to be fraught with problems and, unless a commercial settlement can be reached between the contractor and the subcontractors, the matter may have to be settled by several separate arbitrations or by the same proceedings involving several parties.

Appendix A: Sample Claim for Extension of Time and Additional Payment

Introduction to the Example


The sample claim which follows is for an extension of time and reimbursement of loss and/or expense arising out of the delays (Dl), (D2), (D3) and (D4) shown in Figure 5.9 in Chapter 5. Phased completion has been introduced into the example as a result of which additional activities have become critical. For simplicity, the claim deals with the subject matter in the main narrative. In practice, particularly for complex claims dealing with many issues, more use would be made of appendices (summarising notices of delay and the like). Copies of relevant correspondence (referred to in the claim), s u p porting documents, particulars and detailed calculations would also normally be given in an appendix. This example does not contain such appendices (except for programmes and illustrations) but it is assumed that they are submitted. In this example, clauses referred to in the form of contract are often paraphrased. It is sometimes more appropriate to quote the clauses verbatim.

248

Construction Contract Claims

The Claim Submission


Covering letter from Better Builders Ltd (the contractor) to T. Square (the architect): Date 2 April 2001 Dear Sir, Re: ABC Stores and Depot, New Road, Lower Hamstead, Wilton Further to our letter of 22 August 2000 requesting a review of extensions of time, our letter of 12 September 2000 giving particulars of loss and/or expense and our letter of 11 February 2001 requesting a copy of the draft final account, to which we have had no response, we enclose herewith our claim for extensions of time, reimbursement of loss and/or expense and damages. Please note that the contents of this submission do not contain any particulars (with the exception of rates for finance charges for the period after 12 September 2000) which have not been submitted to you previously in correspondence referred to therein. It is our understanding that you have all information necessary for the preparation of the final account and we can see no reason why it should not have been issued prior to this letter. Our claim is for further extensions of time of two weeks for section A and the works (up t o the dates of practical completion) and for reimbursement of loss and/or expense and/or damages for the amount of 90637.42 (including finance charges on liquidated damages). We are also requesting the issuance of a certificate of making good defects, a statement pursuant to clause 30.6.1 of the contract (including all adjustments mentioned in the submission), release of retention of 21010.00, release of liquidated damages amounting to 63000.00 and a final certificate pursuant t o clause 30.8 of the contract. Your early response would be appreciated. Yours faithfully For and on behalf of Better Builders Ltd

Appendix A

249

Better Builders Ltd Scaffold Road Hamstead Rise, Wilton

Manufacturing plant and associated works at New Road, Lower Hamstead, Wilton for ABC Industries Ltd Factory Lane, Hamstead Rise, Wilton

Claim for extensions of time and reimbursement of loss and/or expense and/or damages and repayment of liquidated damages

. Square of Drawing Board and Associates Architect: T Design Avenue, Hamstead Rise, Wilton

2 April 2001

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Construction Contract Claims

Claim for extensions of time for completion of the works and section A, reimbursement of loss and/or expense and/or damages and repayment of liquidated damages. 1.0 Introduction. 1.1 The parties. 1.1.1 1.1.2 1.1.3 1.1.4 The employer is ABC Industries Ltd of Factory Lane, Hamstead Rise, Wilton. The architect is T. Square of Drawing Board and Associates, Design Avenue, Hamstead Rise, Wilton. The quantity surveyor is R.E. Measure of The Manor, Billingsgate Road, Hamstead Rise, Wilton. The contractor is Better Builders Ltd of Scaffold Road, Hamstead Rise, Wilton.

1.2 The works. 1.2.1 The works comprise the alteration of an existing stores building into a manufacturing plant for motor parts including the construction of a new access road, drainage, diversion of services and landscaping at ABC Stores and Depot, New Road, Lower Hamstead, Wilton.

1.3 The tender and the contract sum. 1.3.1 The contractor submitted his tender on 10 January 2000 for the sum of 827333.00. It was a condition of the contractor's tender that work would be permitted on weekends and public holidays and that the employer would undertake t o ensure the presence of the architect or his representative on such days where it was necessary for the supervision and administration of the contract. The employer unconditionally accepted the contractor's tender by letter dated 25 January 2000. The contract sum in article 2 of the agreement is 827333.00.

1.3.2 1.3.3

1.4 The contract. 1.4.1 The contract is the Standard Form of Building Contract, 1998 Edition, Private with Quantities, issued by the Joint Contracts Tribunal and incorporating the Sectional Completion Supple-

Appendix A

251

ment 1998 edition. The following amendments have been made to the standard conditions of contract:

1.4.1.1 Sub-clause 1 . 3 - Definitions. Definition of Section A - 'Completion of all alterations in the


existing store building to such state as (in the opinion of the architect) to enable the employer to commence installation of plant and equipment.'

1.4.1.2 Sub-clause 25.4.2 (relevant event - exceptionally adverse


weather conditions) has been deleted.

1 . 4 . 2

The relevant particulars in the appendix to the contract are as follows:

1 . 4 . 2 . 1 Clause 1 . 3 Dates for completion - Twenty-two weeks after the date of possession. 1 . 4 . 2 . 2 Clause 17.2 Defects liability period - Six months. 1.4.2.3 Clause 22.1 Insurance of the works

- Alternative C applies.
possession of the site.

1.4.2.4 Clause 23.1.1 Date of possession - Seven days after the architect's written instruction to take 1 . 4 . 2 . 5 Clause 23.1.2Deferment of the date of possession

- Does not apply.

1 . 4 . 2 . 6 Clause 24.2 Liquidated and ascertained damages - f2500.00 per day. 1.4.2.7 Clause 30.4.1. I Retention percentage - Five per cent. 1.4.2.8 Clauses 38'39 and 40 Fluctuations - Clause 38 shall apply. 1.4.3 The relevant particulars in the appendix t o the sectional completion supplement are as follows:

1 . 4 . 3 . 1 Clause 2 . 1 Section of the works - Section A as described in clause 1.3 of the conditions of
contract.

1 . 4 . 3 . 2 Clause 18.1.5 Section value - f525000.00.

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Construction Contract Claims

1.4.3.3 Clauses 17, 18, 30 Defects liability period - Six months. 1.4.3.4 Date of possession of section - On the date of possession in clause 23.1 .I of the conditions of contract. 1.4.3.5 Date for completion of section - Sixteen weeks after the date of possession. 1.4.3.6 Rate of liquidated and ascertained damages for section - 2000.00 per day. 1.5 The programme: 1.5.1 1.5.2 The contractor's original programme for completion of the works is shown in appendix I hereto (see Figure A.1). The activities forming section A are F-GI B-G and G-H.

2.0 Summary of Facts: 2.1 Possession of site: commencement and completion of the works. 2.1.1 2.1.2 2.1.3 On 7 February 2000, the architect gave written notice t o the contractor to take possession of the site on 14 February 2000. The contractor took possession of the site and commenced work on 14 February 2000. Pursuant to clause 3.1 of the conditions of contract, the sectional completion supplement (and the relevant appendices) and the architect's written instruction of 7 February 2000, the dates for completion were:

2.1.3.1 Section A - 4 June 2000. 2.1.3.2 The works - 16 July 2000. 2.1.4 Practical completion occurred on the following dates: 2.1.4.1 Section A - 25 June 2000 (Architect's certificate of practical completion dated 11 August 2000). 2.1.4.2 The works - 6 August 2000 (Architect's certificate of practical completion dated 11 August 2000).

Appendix A

253

2.2 Delay and extensions of time: 2.2.1 The contractor gave the following notices of delay and particulars pursuant to clause 25 of the conditions of contract:

2.2.1.1 Letter dated 20 March 2000 [week 61 - Notice of delay as a result of exceptionally adverse weather conditions affecting E (Delay Dl). activity B2.2.1.2 Letter dated 23 March 2000 [week 61 - Notice of delay as a result of architect's instruction no 1 (issued 20 March 2000) t o alter work partially completed to activity 6-G (Delay D2). 2.2.1.3 Letter dated 11 April 2000 [week 91 - Particulars of delay caused by architect's instruction no 1. 2.2.1.4 Letter dated 4 April 2000 [week 81 - Notice of delay as a result of revised and additional work to activity B-G shown on drawings ADl14A and ADl15A issued on 3 April 2000 [week 81 (Delay D3). 2.2.1.5 Letter dated 28 June 2000 [week 201 - Particulars of delay caused by the issuance of drawings ADl14A and ADl15A. 2.2.1.6 Letter dated 12 July 2000 [week 221 - Notice of delay as a result of late issuance of instructions on the expenditure of the PC sum for work to be done by a nominated subcontractor on activity H-K (Delay D4). 2.2.1.7 Letter dated 7 August 2000 - Particulars of delay caused by late issuance of instructions on the expenditure of PC sum (see 2.2.1.6 hereof). 2.2.1.8 Letter dated 22 August 2000 - Letter requesting the architect t o review his extensions of time for section A and the works pursuant to clause 25.3.3 of the conditions of contract and giving further particulars. 2.2.2 The architect has made the following extension of time for completion of the works pursuant t o clause 25 of the conditions of contract:

2.2.2.1 Certificate reference EOT 1 dated 14 August 2000 [week 271 Section A - Extension of time of one week as a result of the additional work to activity B-G shown on drawings ADl14A and ADl15A (Delay D3), giving a revised completion date of 11 June 2000.

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Construction Contract Claims

2.2.2.2 Certificate reference EOT 2 dated 14 August 2000 [week 271 The works - Extension of time of one week as a result of the late issuance of instructions for the expenditure of PC sums (Delay D4), giving a revised completion date of 23 July 2000 [week 231. 2.2.2.3 At the date of this submission, the architect has not given a written response to the contractor's request of 22 August 2000 (see 2.2.1.8 hereof). 2.3 Certificates of non-completion. 2.3.1 Pursuant to clause 24.1 of the conditions of contract, the architect issued certificates of non-completion dated 14 August 2000 certifying that the contractor had not completed: Section A 2000.

- by the extended date of completion of 11 June

The works - by the extended date of completion of 23 July 2000. 2.4 Direct loss and/or expense: 2.4.1 The contractor notified the architect, pursuant to clause 26 of the conditions of contract, that the regular progress of the works had been affected and that he had incurred, and was continuing to incur, direct loss and/or expense as follows:

2.4.1.1 Letter dated 30 May 2000 [week 161- As a result of delays to G (Delays D2 and D3). activity B2.4.1.2 Letter dated 27 June 2000 [week 201 - Further disruption of the regular progress of the works as a result of delay to activity B-G (Delay D3) and as a result of late nomination of the subcontractor for activity H-K (Delay D4). 2.4.2 By letter dated 14 August 2000, the quantity surveyor requested further particulars from the contractor in support of his application for reimbursement of direct loss and/or expense. On 12 September 2000, the contractor provided the further particulars requested by the quantity surveyor on 14 August 2000. At the date of this submission, no sums for loss and/or expense have been ascertained and no further requests for particulars have been made by the architect or quantity surveyor.

2.4.3

2.4.4

Appendix A

255

2.5 Payment and final account: 2.5.1 The latest certificate issued prior to the date of this submission is interim payment certificate no 6 dated 14 August 2000 showing the following amounts: 840400.00. 21 010.00.

2.5.1.1 Gross value of work at practical completion 2.5.1.2 Retention 2.5.1.3 Nett amount due 2.5.1.4 Previous certificates 2.5.1.5 Amount due for payment 2.5.2

On 15 August 2000, the employer notified the contractor pursuant to clause 30.1.1.4 that it would withhold the amount of 63000.00 as liquidated damages from the amount due pursuant to certificate no 6 dated 14 August 2000. The employer has paid the amount certified as being due for payment in interim payment certificates, less liquidated damages in the sum of 63000.00. The nett payment made after deduction of liquidated damages was 31 190.00. On 12 February 2001, the contractor requested a copy of the final account showing the value of work executed including all adjustments to the contract sum and amounts for nominated subcontractors and suppliers. At the date of this submission, no final account has been issued t o the contractor.

2.5.3

2.5.4

2.5.5

2.6 Defects: 2.6.1 On 8 January 2001, the architect issued a schedule of defects pursuant to clause 17.3 of the conditions of contract and instructed the contractor to make good the said defects. On 12 February 2001, the contractor notified the architect that he had rectified all defects notified by the architect in his schedule of 8 January 2001 and he requested a certificate of making good defects pursuant t o clause 17.4 of the conditions of contract. At the date of this submission, no certificate of making good defects has been issued.

2.6.2

2.6.3

3.0 Basis of claim: 3.1 The contract contained the following provisions:

256 3.1.1

Construction Contract Claims

Clause 5.4.2 requires the architect to provide further drawings and details sufficently in advance of when the contractor needs such drawings or details. Clause 13.5 - If compliance with an instruction substantially changes the conditions under which any other work is executed, then such work shall be treated as if it had been the subject of an instruction of the architect requiring a variation under clause 13.2. Provided that no allowance shall be made under clause 13.5 for any affect on the regular progress of the works or for any other direct loss and/or expense for which the contractor would be reimbursed by payment under any other provisions in the conditions of contract. Clause 17.4 -When in the opinion of the architect any defects or other faults which he may have required be made good under clauses 17.2 and 17.3 (defects occurring in the defects liability period), he shall issue a certificate to that effect and the said defects shall be deemed t o have been made good on the day named in such certificate. Clause 24.2.2 - If, under clause 25.3.3, the architect fixes a later completion date the employer shall repay to the contractor liquidated damages allowed under clause 24.2.1 for the period up to such later completion date. Clause 25 - The contractor shall give notice and particulars of delay and shall be entitled t o a fair and reasonable extension of time for completion if completion of the works (andlor section) are delayed by the following relevant events (specified in clause 25.4);

3.1.2

3.1.3

3.1.4

3.1.5

3.1.5.1 3.1.5.2 3.1.6

- compliance with architect's instructions under clause 13.2 (variations) - clause 25.4.5.1; - failure of the architect t o comply with clause 5.4.2 (clause
25.4.6.2); Clause 26 - If the contractor makes written application to the architect stating that he has incurred or is likely to incur direct loss and/or expense for which he would not be reimbursed under any other provision in the contract due to the regular progress of the works or any part thereof being materially affected by:

3.1.6.1

- failure of the architect to comply with clause 5.4.2


26.2.1.2);

(clause

Appendix A

257

3.1.6.2

- architect's

instructions issued under clause 13.2 requiring a variation (clause 26.2.7); and provided that his application was made as soon as possible after it has become, or should reasonably have become, apparent t o the contractor that the regular progress of the works or any part thereof had been or is likely to be affected,

and the contractor has in support of his application upon the request of the architect submitted such information as should reasonably be necessary t o enable the architect t o form an opinion, and the contractor has submitted to the architect or quantity surveyor upon request such details of loss and/or expense as are reasonably necessary for ascertainment, then the architect or the quantity surveyor shall ascertain the amount of such loss and/or expense and the amount ascertained shall be added to the contract sum (clauses 26.1 and 26.5). 3.1.7 Clause 30 - Half of the retention percentage may be deducted from the amount which relates to work which has reached practical completion (clause 30.4.1.3) and the remaining half shall be released upon issuance of the final certificate, which shall be issued no later than two months after whichever of the following occurs last (clause 30.8):

3.1.7.1 the end of the defects liability period; 3.1.7.2 the date of the issue of the certificate of making good defects under clause 17.4; 3.1.7.3 the date on which the architect sent a copy to the contractor of any ascertainment under clause 30.6.1.2.1 (loss and/or expense) or statement under clause 30.6.1.2.2 (all adjustments to the contract sum). 3.2 3.3 The above provisions apply to the works and sections A (sectional completion supplement).
Without prejudice to the contractor's rights to claim damages under the general law (clause 26.61, save as provided in 3.3.1 and 3.3.2 hereof, the contractor's claim is made pursuant to the provisions on the contract hereinbefore mentioned. The contractor is entitled to interest on liquidated damages which shall become repayable to the contractor pursuant

3.3.1

258

Construction Contract Claims

to a revised extension of time made by the architect Department of Environment for Northern Ireland v. Farrans (1981) 19 BLR 1. Where the contractor complies with his obligations with respect to information and particulars for the purposes of preparing the final account and all adjustments to be made to the contract sum, if the architect or quantity surveyor fail t o prepare such final account or make all necessary adjustments as aforesaid, the contractor is entitled to reimbursement of the cost incurred in preparing such adjustments James Longley & Co Ltd v. South West Regional Health Authority (1985) 25 BLR 56. 4.0 Details of Claim: 4.1 Introduction. 4.1.1 The contractor's programme for completion of the works and section A within the periods for completion is shown in appendix I (A.1) hereto. Activities A-B to J-K are critical for completion of the works in twenty-two weeks. Activities A-B F, F-G and G-H are critical for completion of section A to EC t o D-H and H-K are not critin sixteen weeks. Activities Bical, and will not become critical until all of the float shown on the contractor's programme has been used up by delays to these otherwise non-critical activities. The causes of delay referred to in this section are delays which entitle the contractor t o an extension of time, or, if no extension of time is permitted for delay by such cause (as in the case of exceptionally adverse weather conditions), the contractor would be entitled to an extension of time for other causes of delay which used the float in the programme as a result of which otherwise non-critical activities became critical and caused delay to completion of the works (or section). 4.2 Exceptionally adverse weather conditions Delay (Dl). 4.2.1 4.2.2 Activity BE is for the construction of a surface water culvert under the new access road. The contractor completed the preceding activity (A-B) on programme and was proceeding with the construction of activity BE in accordance with the programme.

Appendix A

259

4.2.3

During the week-end of 18 and 19 March,2000, continuous rainfall caused the open trench for the construction of the culvert to be flooded. On 20 March 2000, the contractor hired additional pumps to remove the water from the excavations. However, exceptionally adverse weather conditions continued during the period of two weeks (weeks commencing 20 and 27 March 2000). Records of the rainfall during the period taken at Much Hamstead (four miles from the site) were obtained by the architect for record purposes. Water had been removed from the trenches and the contractor was able to recommence construction of the culvert on 3 April 2000 (a delay of two weeks). The contractor gave notice of delay pursuant to clause 25.2.2.1 of the conditions of contract. It is common ground that the contractor was delayed by a period of two weeks as a result of the said weather conditions and that no extension of time is permitted for such delay by virtue of the deletion of clause 25.4.2 of the conditions of contract.

4.2.4

4.2.5 4.2.6

4.3 Architect's instruction no 1 4.3.1

- Delay (D2).

4.3.2

Activity F-G is for the construction of an effluent drain under the existing stores and constructing new bases for the plant and equipment to be installed by the employer. On 20 March 2000, the architect issued instruction no 1 which required the contractor to reposition the effluent drain in order to accommodate foundations for future alterations to the stores by the employer. At the time of issuance of the said instruction, the construction of the new effluent drain was on programme. The contractor had excavated and laid all pipes within the existing stores and was ready to test the pipes prior t o backfilling the trench on 20 March 2000. Records of the work executed prior t o the issuance of the said instruction were agreed with the quantity surveyor. The contractor commenced cutting out the existing floor slab at the revised location of the effluent drain on 21 March 2000. On the same day, some of the resources (labour and plant) were diverted from activity B-E (delayed as a result of the inclement weather described in 4.2 hereof) to commence backfilling to the redundant length of effluent drain.

4.3.3

4.3.4

260 4.3.5

Construction Contract Claims

The contractor excavated the trench for the revised effluent drain and laid the pipes and was ready for testing on 3 April 2000. A delay of two weeks had occurred as a result of the said instruction. The time taken t o carry out the work prior to testing (2 weeks) was the same time allowed in the contractor's programme for carrying out the same quantity of work in the originally designed location of the effluent drain. Backfilling and making good the floor slab at the location of the redundant effluent drain was completed on 3 April 2000. Had the contractor not been able to utilise resources from E (see 4.3.4 hereof), this work could not have been activity Bexecuted until after the contractor had completed the diversion of the effluent drain to the revised location. As a result of the foregoing, activity B-G had been delayed by two weeks. No direct delay to completion of section A or the works was caused by the said instruction -see appendix II (A.2) hereto. Notices and particulars of the delay and disruption and loss and/or expense caused by the said instruction were given by the contractor pursuant to clauses 25 and 26 of the conditions of contract (see 2.2 and 2.4 hereof).

4.3.6

4.3.7

4.3.8

4.4 Additional work 4.4.1

- Delay (D3):

On 3 April 2000, the contractor notified the architect, in writing (letter ref BBIIO), that he intended to divert resources from activity B-G in order t o make up the time lost due to exceptionally adverse weather conditions (Delay Dl). The contractor's revised programme showing completion by the original completion date was attached to the said letter - see appendix II - (A.3) hereto. The revised programme was made on the basis of using some of the float on activity B-G. The original float of six weeks had been reduced by two weeks (Delay D2) and the contractor envisaged using two weeks of the remaining four weeks' float so that work could cease on E was on proactivity B-G until such time as activity Bgramme. No delay t o completion of section A or the works would occur as a result of the reprogramming and two weeks' float would remain in activity B-G. On 3 April 2000, the architect issued drawings AD/14A and 15A showing four additional bases for machinery (to be

4.4.2

Appendix A

261

installed by the employer) and additional effluent branch drains. 4.4.3 On 4 April 2000, the contractor had set out for the new bases and ordered materials for the additional work. On the same day the contractor notified the architect that he estimated a G as a result of delay of seven to eight weeks to activity Bthe said instruction (see 2.2.1.4 hereof). In the same letter, the contractor notified the architect that it would not be of any benefit to divert resources from activity B-G to activity BE (see 4.4.1 hereof) as completion of section A was dependent upon the timely completion of activity B-G, which had now become critical as a result of the additional work. The contractor had completed all work to the revised drawings, by 18 June 2000 (a delay of 7 weeks). On 20 June 2000 [week 191, the contractor issued his revised programme showing the Delays D l to D3, completion of section A on 25 June 2000 [end of week 191 and completion of the works on 30 July 2000 [end of week 241 - see appendix II (A.4) hereof. Notices and particulars of the delay and disruption and loss and/or expense caused by the said additional work were given by the contractor pursuant to clauses 25 and 26 of the conditions of contract (see 2.2 and 2.4 hereof).

4.4.4 4.4.5

4.4.6

4.5 Late instruction for expenditure of PC sum 4.5.1

- Delay (D4).

The contract bills included the PC sum 45000.00 for the supply and installation of mechanical equipment to the effluent treatment plant. This was shown on the contractor's original programme as activity H-K commencing in week 19 and the period for installation was one week. The contractor's covering letter submitted with the said programme indicated that approximately two weeks would be necessary for ordering, manufacture and delivery of standard equipment from several well-known firms. The letter went on to request the architect to notify the contractor in the event of any potential subcontractors requiring a longer period for delivery, manufacture or installation. The necessary instructions (for standard equipment) would be required no later than 22 May 2000 (commencement of week 15).

4.5.2

262 4.5.3

Construction Contract Claims

As a result of Delays D2 and D3 (see 4.3 and 4.4 hereof) the revised latest date for receipt of instructions was 12 June 2000 [week 181. On 5 June 2000, the architect issued instruction no 7 for the supply and installation of the equipment to be done by Pumps & Co for the sum of 42250.00 in accordance with the tender documents attached to the said instruction. The delivery period for the equipment (which was not a standard set) was quoted as seven to eight weeks and one week was required for installation. On the same day, the contractor notified the architect by fax (ref BBi77) that the delivery period quoted by Pumps & Co was unacceptable, but he would be prepared to place the order with Pumps & Co provided that the architect would make an appropriate extension of time. On 6 June 2000, the architect notified the contractor by fax (ref TSl12A) that he would take the delivery period of the pumps into account when making his decision on extensions of time. On 7 June 2000, the contractor placed his order with Pumps & Co. A formal subcontract was signed between the contractor and Pumps & Co on 19 June 2000. Pumps & Co delivered their equipment to site on 31 July 2000 and completed the installation, including testing, on 6 August 2000 [end of week 251. Completion of the works had been delayed by three weeks having regard to the fact that the contractor had been denied the opportunity to reduce the delay caused by exceptionally adverse weather conditions (Delay D l - see 4.2 and 4.4.1 hereof) - see appendix II (A.5) hereto. Notices and particulars of the delay and disruption and loss and/or expense caused by the said additional work were given by the contractor pursuant to clauses 25 and 26 of the conditions of contract (see 2.2 and 2.4 hereof).

4.5.4

4.5.5

4.5.6

4.5.7

4.5.8

4.5.9

4.6 Summary: 4.6.1 4.6.2 Completion of section A has been delayed by three weeks as a result of Delays (D2) and (D3) - (see 4.3 and 4.4). Completion of the works has been delayed by three weeks as a result of Delays (D2), (D3) and (D4)- (see 4.3,4.4 and 4.5 hereof).

Appendix A

263

4.6.3 4.6.4

The delays referred to hereinbefore are shown in appendix II (A.5) hereto. The contractor contends that the architect has wrongly deducted the period of two weeks (delay caused by exceptionally adverse weather conditions) from the total delay t o completion of three weeks for section A and the works. (The architect's reasons for making this adjustment are given in minutes of meeting of 14 August 2000, paragraph 2.3.) Even if the contractor had not contemplated reprogramming the works to mitigate Delay ( D l ) - (see paragraph 4.4.1 hereof), the contractor maintains that no deduction should be made for Delay ( D l ) when, in any event,'completion of section A and the works were delayed by Delays (D2), (D3) and (D4) which were the responsibility of the employer. Accordingly, the employer could not levy liquidated damages for the period of two weeks when the progress of the works was delayed by matters for which the employer was responsible. Further, or alternatively, the contractor was prevented from mitigating Delay ( D l ) as a result of the additional work (see 4.4 hereof) and is entitled to a fair and reasonable extension of time of three weeks pursuant to clause 25 of the conditions of contract (relevant events described in clauses 25.4.5.1 and 25.4.6) until the date of practical completion of section A and the works and for reimbursement of loss and/or expense pursuant to clause 26 of the conditions of contract (matters described in clauses 26.2.1 and 26.2.7).

4.6.5

4.6.6

5.0 Evaluation of Loss and/or Expense: 5.1 For the reasons given in 4.0 hereof, the contractor is entitled t o direct lossland or expense as follows:

5.1 . I Prolongation: The period of prolongation is 3 weeks. The contractor contends that the issuance of drawings ADll4A and 15A (see 4.3 hereof) substantially changed the conditions under which the work on activity B-E would otherwise have been carried out (see 4.4.1 hereof). Therefore, notwithstanding Delay (Dl), pursuant to the provisions of clause 13.5.5 and the proviso in the final paragraph of clause 13.5, the contractor is entitled to reimbursement for the total period of prolongation pursuant to clause 26 (matter referred to in clause 26.2.7).

264

Construction Contract Claims

The contractor is entitled to reimbursement of loss andlor expense caused by Delays (D2) and (D3) pursuant t o clause 26 (matter described in clause 26.2.7). The contractor is entitled to reimbursement of loss andlor expense caused by Delay (D4) pursuant to clause 26 (matter described in clause 26.2.1.2). 5.1.1 . I Head office overheads and profit: As a result of Delays (D2), (D3) and (D4) described in 4.0 hereof, the contractor was required to retain its key staff and resources on site for an additional period of three weeks and was deprived of making a contribution to overheads and profit. The contractor is therefore entitled to recover this loss pursuant t o the provisions mentioned in 5.1.1 hereof. The contractor's auditors have certified that the contractor's overheads and profit (as percentages of revenue) were as follows: Year ending 31 July 1999 - 12.76% Year ending 31 July 2000 - 11.98% The average percentage for overheads and profit for two years was therefore: Using Emden's formula: Loss of overheads and profit for three weeks = Overheads & profit % Contract sum x x Period of delay 100 Contract period 12.37% f827 333.000 x x 3 weeks = 100 22 weeks 5.1.1.2 Site overheads and establishment (preliminaries): As a result of Delays (Dl), (D2) and (D3) described in 4.0 hereof, the contractor was required to retain its key staff and resources on site for an additional period of three weeks. The contractor is therefore entitled to recover the expense of his site overheads and establishment costs for the period of delay pursuant t o the provisions mentioned in 5.1.1 hereof. Delays (D2) and (D3) - 2 weeks hereto.

- see

(A.4) in appendix II

Costs incurred during weeks 11 and 12:

Appendix A

265

Excludes costs associated with activity B-G: Project manager General foreman Engineer Quantity surveyor (part) Administration staff Hire of offices Office equipment Plant & equipment Scaffolding Small tools & equipment Electricity charges Telephone charges Security Stationery and sundries Total Delay (D4) - One week - see (A.5) in appendix II hereto. Costs incurred during week 23; Project manager General foreman Quantity surveyor (part) Administration staff Hire of offices Office equipment Plant & equipment Small tools & equipment Electricity charges Telephone charges Security Stationery and sundries 1 week @ f 1200.00/week = f1200.00 1 week @ f 1150.00/week = f 1150.00 1 week @ f 600.00Iweek 1 week @ f300.00/week 1 week @ 900.00/week 1 week @ f200.00/week 1 week @ f 550.00/week 1 week @ f200.00/week 650.00 x 1/13 weeks 325.00 x 1/13 weeks 1 week @ f500.00/week 62.00 x 7/31 days
= f 600.00 = 300.00 = 900.00 = 200.00 = f 550.00

2 weeks @ f 1200.00/week = 2400.00


2 weeks @ 1150.00/week
= 2300.00
= 2200.00

2 weeks @ f1 100.00/week 2 weeks @ f600.00/week


2 weeks @ f750.00/week

= f 1200.00 = f 1500.00 = f 1800.00 = f 400.00 = 3900.00 = 1300.00 = f 300.00 = f 150.00 = f 1000.00 = f 42.00

2 weeks @ f900.00/week 2 weeks @ f200.00/week 2 weeks @ f 1950.00/week 2 weeks @ f650.00lweek


f 1950.00 x 2/13 weeks

2 weeks @ f 1600.00/week = 3200.00

975.00 x 2/13 weeks 2 weeks @ f 500.00/week 90.00 x 14/30 days

21 692.00

= 200.00
= f 50.00 = f 25.00

= f 500.00
= f 14.00

Total f 5689.00 Total site overheads and establishment costs = 21 692.00 + 5689.00 = f27 381.OO

266

Construction Contract Claims

5.1.1.3 Finance charges on delayed release of retention: Pursuant to clauses 30.4 and 30.8 of the conditions of contract, two and a half per cent of the contract sum (being one half of the retention percentage stated in the appendix to the conditions of contract) should be certified and paid after practical completion (of section A and the works) and upon the issuance of the final certificate. As a result of Delays (D2), (D3) and (D4), the dates when the retention ought to have been released were three weeks later than the dates which would have applied if there had been no delay. Accordingly, the contractor has incurred financing charges by virtue of the fact that interest charges on his overdraft have been accruing for an additional period of three weeks on the amount of retention withheld. The finance charges incurred are calculated at the rate of two per cent above the bank base rate (as charged by the contractor's bank from time to time) as follows: First half due t o be released. Period of financing (assume release three weeks after practical completion): Section A The works Planned release 10 July 2000 7 August 2000 Actual release 31 July 2000 28 August 2000 Rate 8% 8%

Amount of retention: Section A: f 14000.00 Finance charges = 14000.00 x 8% x 211365 = 64.43 The works: 21 010.00 - f 14000.00 = 7010.00 Finance charges = 7010.00 x 8% x 211365 = 32.27 Second half due to be released (Defects liability period - six months). Period of financing (assume release six months after first release): Section A The works Planned release 10 Jan 2001 7 February 2001 Actual release 31 Jan 2001 28 February 2001 Rate 8% 8%

Amount of retention: Section A: f 14000.00 Finance charges = 14000.00 x 8% x 211366 = 64.43

Appendix A

267

The works: 21 010.00 - 14000.00 = 7010.00 Finance charges = 7010.00 x 8% x 211366 = 32.27 Total finance charges on retention 5.1.1.4 Fluctuations: The contract does not provide for reimbursement of fluctuations of labour or materials (see 1.4.2.8 hereof). The contractor allowed for the anticipated increase in labour in June 2000 in his tender (for the labour required to execute the work in weeks 20-22 on activity J-K). The hours allowed by the contractor i n his tender during this period were as follows: Craft operatives Labourers 3170 hours 2700 hours

Due to Delays (D2), (D3) and (D4), the contractor's labour resources in weeks 20-25 were as follows: Craft operatives Labourers 5060 hours 4365 hours

Due to the fact that the contractor had been prevented from mitigating the delay caused by exceptionally adverse weather conditions (Delay D l ) - see 4.4.1 hereof, the additional costs of labour for the additional hours expended after the wage increase on 26 June 2000 (most of which would have been prevented by the measures proposed by the contractor to mitigate the delay) qualify for reimbursement pursuant to clause 26 of the conditions of contract. The additional costs of labour claimed are calculated as follows: Craft operatives NI & Employer's Ins. (11%) Labourers NI & Employer's Ins. (11%) Tender 6.05 0.67
6.72 4.90 0.54 5.44

26 June 2000 6.35 0.70 7.05 5.15 0.57


5.72
= 1890 hrs = 1665 hrs

Increase

0.33 (hr)

0.28 (hr)

Hours after 26 June 2000: Craft operatives Labourers 5060 - 3170 4365 - 2700

268

Construction Contract Claims

Therefore, the additional costs caused by Delays (Dl), (D2) and (D3) are: Craft operatives 1890 hrs @ f0.33 Labourers 1665 hrs @ f 0.28 Total
= f 623.70 = f 466.20

f 1089.90
1089.90

The total increased cost of labour fluctuations is

The contractor ordered all materials at the prices applicable at the date of tender and no claim is made for increased costs of materials. 5.1.1.5 Total prolongation costs: Head office overheads & profit (5.1.1.1) Site overheads & establishment costs (5.1.1.2) Finance charges on retention (5.1.1.3) Fluctuations (5.1. I .4) TOTAL 5.1.2
= f 13955.00 = 27381.00 = f 193.40 = fI 089.90

42 619.30

Disruption: Activity B-G was delayed by nine weeks as a result of Delays (D2) and (D3). Site staff and resources allocated to this activity were required on site for this additional period and the contractor is entitled to reimbursement of expense caused thereby.

5.1.2.1 Cost of resources allocated to activity B-G: Section foreman Engineer Plant & equipment Scaffolding (part only) Small tools & equipment Total 5.1.3 9 weeks 9 weeks 9 weeks 9 weeks
@ f 1000.00/week @ f 1000.00/week @ f550.00lweek @ f800.00/week
= 9000.00 = 9000.00 = 4950.00
= 7200.00

9 weeks @ f400.00/week

= 3600.00

33 750.00

Finance charges on loss and expense: The contractor has incurred financing charges by virtue of the fact that interest charges on his overdraft have been accruing from the date that each head of loss and expense occurred.

Appendix A

269

In addition, the contractor has incurred finance charges on the liquidated damages and he claims finance charges under the general law until liquidated damages are repaid to the contractor (see 3.3.1 hereof). For the purposes of calculating finance charges, the dates when the loss and expense occurred are taken as follows: Head office overheads & profit (5.1.1.1) Site overheads & establishment (5.1.1.2) Finance charges on retention (5.1.1.3) 3 August 2000 3 May 2000 3 August 2000 3 August 2000 3 Sept 2000 3 Feb 2001 3 March 2001 3 May 2000 3 August 2000
3 Sept 2000

Disruption (5.1.2.1) Fluctuations (5.1.1.4) Total On liquidated damages

Therefore, finance charges accrued on the following sums from the dates given below:

f55 442.00 f20 798.33


f 63 032.27 f 64.43 f 32.27

3 May 2000 3 August 2000 3 September 2000 3 February 2001 3 March 2001

The finance charges incurred are calculated at the rate of two per cent above the bank base rate (as charged by the contractor's bank from time to time) in appendix Ill hereto. The total finance charges up to 31 March 2001 (the date of this submission) are f8218.12.

5.1.4

Costs of preparing the claim:

5.1.4.1 The contractor has complied in all respects with his obligations to give notice and full particulars pursuant to clause 26 of the conditions of contract (see 2.2 and 2.4 hereof) and the architect has failed t o comply with his obligations to ascertain the loss and/or expense due to the contractor.

270

Construction Contract Claims

5 . 1 . 4 . 2 Accordingly the contractor claims reimbursement of the fees


paid t o Contraconsult Ltd for the preparation of this submission in the sum of f6050.00 (see 3.3.2 hereof).

5 . 2 Summary of loss and/or expense and/or damages:


The following sums are due to the contractor: Prolongation costs ( 5 . 1. I.5) Disruption (5.1.2.1 ) Finance charges (5.1.3) Cost of preparing the claim (5.1.4) Total

42619.30 33750.00 8218.12 6050.00 f90637.42

6.0 Statement of Claim: 6 . 1 Extensions of time: 6.1.1


The contractor claims an extension of time pursuant to clause 25 of the conditions of contract of a further two weeks giving the following extended dates for completion: Section A - 25 June 2000 The works - 6 August 2000

6.2 Loss and expense and/or damages: 6 . 2 . 1


The contractor claims reimbursement of loss and/or expense pursuant to clause 26 of the conditions of contract and/or damages for breach of contract amounting to 430637.42.

6.3 Retention: 6.3.1


The contractor is entitled to release of retention in the sum of 21 010.00.

6.4 Adjustments to the contract sum: 6 . 4 . 1


The contractor has submitted under separate cover (letter of even date) his statement of account for all adjustments t o the contract sum (excluding the loss and/or expense and/or damages herein) and claims payment of the sum 6325.78 being the outstanding amount due t o be included in the final statement of account pursuant to clause 30.6.1 of the conditions of contract.

Appendix A

271

6.5 Liquidated damages: 6.5.1 The contractor claims repayment of liquidated damages in full for the amount of 63000.00.

6.6 Finance charges accruing:

6.6.1

The contractor claims finance charges on the sums stated in 6.2 to 6.5 hereof after the date of this submission at the rate of two per cent above the bank base rate.

272

Construction Contract Claims

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Appendix A

275

276

Construction Contract Claims

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Appendix Ill BElTER BUILDERS LTD FINANCE CHARGES ON BALANCE DUE


DATE CAPITAL ADDED f 55 442.00 20798.33 63 032.27 CAPITAL TOTAL RATE PERIOD DAYS INTEREST CAPITAL plus INTEREST

f
55 442.00 56 158.95 76 957.28 139989.55 141777.74 144 636.60 144701.03 144733.30 146 541.28

f
0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08

f
59.00 33.00 31.OO 28.00 92.00 33.00 28.00 29.00

f
716.95 406.19 522.89 859.1 1 2858.86 1046.14 888.03 919.95 8218.12

f
56 158.95

3-May-00 1-Jul-00 3-Aug-00 3-Sep-00 1-0ct-00 I-Jan-01 3-Feb-01 3-Mar-01 I-Apr-01

141777.74 144636.60 145 682.74 146 541.28 147587.42

64.43 32.27 139 369.30

Dates in bold = rest days for compounding interest. Interest rate after 1 October 2000 assumed at current rates

3 9
b

278

Construction Contract Claims

Architect's reply to the contractor's letter of 2 April 2001 and the claim submission:

Date 8 May 2001 Dear Sirs, Re: ABC Stores and Depot, New Road, Lower Hamstead, Wilton. I refer to your letter and enclosures of 2 April 2001. Extensions of time Having considered the arguments in your submission, I am prepared to fix later completion dates of 25 June 2001 for section A and 6 August 2000 for the works. That is, total extensions of time of three weeks inclusive of the extensions already made in my certificate EOT 1 dated 14 August 2000.1 am not empowered to deal with the matter of finance charges on liquidated damages, and I am instructed to inform you that the employer wishes to discuss this with you at a meeting to be arranged next week. In the meantime, 1 will prepare the necessary certificate and issue it by the end of this week. Loss andlor expense I cannot agree that you are entitled t o prolongation costs for the period of prolongation caused by Delays (D2) and (D3). The principal cause of delay during this period was exceptionally adverse weather conditions (Delay D l 1. I have considered your arguments on reprogramming (paragraph 4.4.1 of your submission) and I reject it on the grounds that you would have required additional formwork to make any progress on activity BE in order to mitigate the delay. No additional formwork was delivered to site for this work. Further, I cannot agree that your resources were prevented from taking on other work as a result of Delay (D4). According to my records, site offices were removed in week 24 and your resources were decreased commencing the end of week 23. 1 am prepared to include the part-time cost of your general foreman as part of your claim (subject to substantiation of his time spent on site). I do not accept that you lost any opportunity t o make a contribution to overheads and profit as a result of one week delay. Even if I allowed loss of overheads and profit for any part of the prolonged period, I would have to deduct the overheads and profit recovered in the variations and extra work to activity B-G.

I also reject your argument on reimbursement of the costs of preparing the claim.

Appendix A

279

The quantity surveyor's assessment of loss and/or expense, taking into account the above comments, is 18500.00 inclusive of finance charges up to the date of this letter. A statement pursuant to clause 30.6.1 of the conditions of contract will be sent to you within the next few weeks. Yours faithfully T. Square

Contractor's reply to the architect's letter of 8 May 2001:

Date 16 May 2001 Dear Sir Re: ABC Stores and Depot, New Road, Lower Hamstead, Wilton. Thank you for your letter of 8 May 2001. We cannot agree with your comments on our claim for loss and/or expense and/or damages. Regarding measures to mitigate the delay caused by exceptionally adverse weather conditions (Delay Dl), the work which would have been done in the first week after the delay [week 81 was the excavation of a trench 2.5 metres wide by 2.25 metres deep. No formwork was required until the second week. We enclose herewith the acknowledgement of order for additional formwork which was due to be delivered on 8 April 2000. Accordingly, had we carried out the measures to mitigate the delay, we would have been able to E in accordance with our original programme. complete activity BRegarding the removal of site offices and reduction in resources, we had originally planned t o remove the site offices before the completion date and our resources would have been reduced commencing week 20 if the project had not been delayed. As a result of Delays (D2), (D3) and (D4) our resources were required for this project for three weeks longer than they would have been if there had been no delay. We reject the argument that we did not lose any opportunity to make a contribution to overheads and profit as a result of the delay. Please find enclosed a copy of the minutes of our board meeting on 3 July 2000 in which it is recorded that we postpone commencement of our own speculative development of twenty-six houses because our labour, staff and plant were retained on this project as a result of the delay.

280

Construction Contract Claims

We also disagree with the proposition that an adjustment should be made for overheads and profit recovered in variations and extra work. This work delayed activity B-G and delayed completion of section A. There was no affect on the period of prolongation (which was a result of late nomination of Pumps & Co). In other words, the overheads and profit recovered in the additional work to activity B-G would have been earned within the original contract period and no adjustment would have been made (see The Presentation and Settlement of Contractors' Claims by Geoffrey Trickey at pp. 127 and 128). In the circumstances of this case, we must insist that it is right to reimburse the cost of preparing the claim. We trust that you will reconsider the matter at your earliest convenience. Yours faithfully For and on behalf of Better Builders Ltd.
Footnotes

Some of the arguments in the above example may be persuasive in negotiations. Differences of opinion in the industry on the use of a formula, concurrent delays, adjustment for overheads and profit recovered in variations and the costs of preparing the claim may give rise to real stumbling blocks in the negotiations to settle the sums in dispute. This example may not cover all that went wrong during the progress of the works. There may have been other delays by the contractor. However, on the facts described in the example, the contractor appears to have reasonable grounds to pursue his claims. While, in this case, the architect has now granted an extension for the full period of delay, some practitioners may argue that the words used in clause 25.3.1 of JCT80:
'If, in the opinion of the Architect,. . any of the events.. . are a Relevant Event and the completion of the Works is likely to be delayed thereby beyond the Completion Date.. . the Architect shall in writing.. . give an extension of time.. . '

do not cover extensions of time in the circumstances of this case. For example, none of Delays (D2), (D3) or (D4) caused completion of the works (or section A) to be delayed beyond the completion date.

Appendix A

281

Delay ( D l ) had already caused the completion of the works and section A to be delayed (or likely to be delayed) beyond the completion date. Unless clause 25.3.3 is intended to allow greater flexibility for granting extensions of time, it would appear to be at least arguable that once the contractor has caused delay which was likely to cause completion of the works to be delayed beyond the completion date, the clause does not bite. If that was the case, there would be no valid extension of time provision (after the contractor's delay) and all subsequent delays within the control of the employer would put time at large and no liquidated damages could be recovered. This is clearly not the intention of the contract, but some revised drafting may be helpful. Clause 23 of JCT63 (which is still in use in some parts of the world) does not have any provisions similar to clause 25.3.3 of JCT80, in which case the clause may be defective if construed very narrowly.

Appendix B: Sample Loss of Productivity Claim (due to disruption)

Introduction and Explanation


A contractor for mechanical installations entered into a contract for various pipework systems which were required to be carried out in 13 weeks in accordance with an approved programme. The contractor's tender was based on estimating norms for productivity; for example, in week 1 , the part of the work to be done in accordance with the programme was 35 lineal metres (lin. m.) of 35mm diameter pipe at 0.6 man-hours per lin. m. (21 man-hours). The total man-hour requirement in week 1was estimated to be 5 2 5 man-hours, to be achieved with a gang of 1 2 men working 4 4 hours per week. The contractor's analysis of total quantities and manpower required to execute the works in 13 weeks is shown in Figure B.1. The contractor commenced work on time. From weeks 8 to 17, numerous variation instructions were issued to reroute pipework to avoid conflicts with other installations and to accommodate some changes in layout of the building. Parts of the installation already installed had to be dismantled and re-installed (done on day-work). The contractor had to work out-of-sequence in various parts of the building instead of in an orderly manner as planned. The work actually took 1 7 weeks to complete. The actual quantities and schedule of work done are shown in Figure B.1. The data from Figure B . l has been incorporated in Figure B.2, which shows the productivity, incidence of variations and alterations (daywork) on a weekly basis. It is evident from Figures B.l and B.2 that during weeks 1-8, the contractor was able to progress the work approximately as planned until the end of week 8, that is 5364 man-hours of work had been achieved compared with the original plan of 5216 man-hours (5216 being the sum of planned man-hours for the first eight weeks in the tender plan). The con-

Appendix B

283

tractor had achieved this progress using more manpower, because of inefficient working, and for evey hour worked an average of 0.936 man-hours of work had been done, that is an earned value or productivity factor (PF) of 0.936 compared with the tender norms of 1.0. Apart from two variations issued during this period, the contractor had not been affected by any adverse factors. Accordingly, it is reasonable to argue that given no significant external factors to disrupt the contractor's progress, productivity would have been 0.936 man-hour earned for each 1.0 man-hour worked for the duration of the project, that is even without significant disrupting factors, the contractor could not achieve the tender norm of 1.0. However, from week 9 onwards, it is evident that the number of variations issued and the amount of day-work (dismantling and re-installing work already completed) had an affect on productivity. It is reasonable to conclude that the drop in productivity from week 9 onwards was a direct result of these factors (see Figure B.2).

Calculation of Loss of Productivity


The calculation of loss of productivity is as follows (see Figure B.l):
Productivity factor (PF) in week 1 Man-hours achieved (earned value) = (35 x 0.6)+(60 x 1.2)+ (130 x 2.4)+ (55 x 3.6) = 21+72+312+198 = 6 0 3 Man-hours spent (actual) = 1 4 x 44 = 616 - 2 (day-work) = 614 Therefore productivity factor (PF) = Man-hours work achieved Man-hours spent (actual)

Similar calculations have been done in Figure B.l for all weeks.
Average productivity factor (PF) for weeks 1-8 (before significant disruption)

That is to say, for evey man-hour worked, 0.936 man-hour value of work had been achieved.

284

Construction Contract Claims

Productivity factor (PF) in week 9 (the first week affected by significant disruption) Man-hours achieved (earned value) = 102 + 108 + 264 + 96 = 570 Man-hours spent (actual)= 18 x 44 = 792 - 80 (day-work)= 712 570 Therefore productivity factor (PF) = -= 0.801 712

That is to say, for every man-hour worked, 0.801 man-hour value of work had been achieved.
Loss of productivity in week 9
- (0'936-0'801) x 100% = 14.51%(see Note)

0.936

= 712 man- hours (spent) x 14.51%= 101.32 man- hours

Note - All calculations in Figure B. 1are in Excel and are calculated to more than three decimal places. The results in Figure B.l are therefore more accurate and are given above. Calculations for weeks 10-17 are also shown in Figure B.1. The total loss of productivity is 1624.42 man-hours (being the sum of the loss of productivity for weeks 9-17 calculated in the same manner as week 9). In other words, the contractor's case is that if he had not been disrupted by the numerous changes, instead of spending a total of 10320.00 manhours to complete the work at a productivity factor (PF)of 0.936, the manhours spent would have been 8695.58 man-hours calculated as follows:
Total planned man-hours to execute the work done (excluding day-work)
= 8143

Man-hours to execute work done at a PF of 0.936 (excluding day-work)

Actual man-hours to execute the work done (excluding day-work)= 10 320.00 Loss of productivity = 10 320.00 - 8 695.58 = 1624.42

The extra cost to the contractor is 1624.42 man-hours at the relevant cost per hour.

Orlglnal Quanuties and Schedule of Work for 93 Week Programme

EsUmated ~roductlvlty

wl w2 w3 w4 >W5

w6
w7 w8 w9 w10 wll w12 w13 Total

Total Adual Actual Prod. IOOmm 150mm Daywk Planned No.of Total per hr 25 mm 50 mm Qty mhlunit mh Qty mhlunit mh mh Qty mhlunit mh Qty mhlunil mh mh Men Mh PF 35 0.6 21 60 1.2 72 120 2.4 288 0 525 12 40 3.6 144 528 0994 60 0.6 36 140 2.4 336 40 3.6 144 0 85 1.2 102 618 14 616 1003 70 0.6 42 80 1.2 96 140 2.4 336 0 40 3.6 144 618 14 616 1.003 60 0.6 36 85 1 2 102 120 2 4 288 0 618 60 3.2 192 14 616 1.003 65 0.6 39 170 2.4 408 0 85 1.2 102 50 3.2 160 709 16 704 1.007 90 0.6 54 140 2.4 336 80 1.2 96 0 710 70 3.2 224 16 704 1.009 140 2.4 336 90 0.6 54 80 1.2 96 70 3.2 224 0 710 16 704 1.009 90 1.2 108 80 0.6 48 170 2.4 408 45 0 708 16 704 1.006 3.2 144 0.6 174 1.2 120 290 100 120 2.4 288 40 3.2 128 0 710 16 704 1.009 1.2 180 210 0.6 126 120 150 2.4 288 0 706 35 16 704 1.003 3.2 112 1.2 180 160 0.6 110 2.4 264 0 700 96 150 50 16 704 0.994 3 2 160 100 1.2 120 120 150 0.6 90 2.4 288 10 3.2 32 0 530 12 528 1.004 30 0.6 18 80 1.2 96 90 2.4 216 0 346 8 5 3.2 16 352 0.983 1390 1225 1700 555 8208 186 8184 1.003 Loss of Productivity Base Loss Loss Prod, of Pmd. of Prod. % mh 0.936 0.00 0.00 0.936 0.00 0.00 0.00 0.00 0.936 0.936 0.00 0.00 0.936 0.00 0.00 0.936 0.00 0.00 0.936 0.00 0.00 0.936 0.00 0.00 0.936 14.51 103.32 0.936 28.38 185.16 0.936 35.60 247.77 0.936 37.68 256.99 0.936 46.23 260.73 0.936 41.94 134.19 0.936 46.26 143.41 161.08 0.936 59.66 131.77 0.936 38.76

Actual Quantltlea and Schedule of Work Done

Actual Productivity Total Actual Actual Prod. Planned No.of Total per hr mh" Men Mh" PF 603 14 614 0.982 606 14 612 0.990 624 16 698 0.894 622 16 892 0.899 727 18 782 0.930 739 18 780 0.947 719 18 776 0.927 724 18 774 0.935 570 18 712 0.801 484 18 702 0.689 416 18 692 0.601 398 18 682 0.584 284 16 564 0.504 174 10 320 0.544 156 10 310 0.503 10 102 270 0.378 195 10 340 0.574

wl w2 w3
w4

w5 bv6 w7

w8 w9
w10 wll w12 w13 w14 w15 wl8 w17 Total Orig. Change

l00mm 150mm Daw 25 mm 50 mm Qty mhlunlt mh Qty mhlunit mh mhlunit mh Qty mhlunfi mh mh 1.2 72 % 35 0.6 21 80 O 2 2.4 312 55 3.6 198 60 36 85 1.2 102 120 4 0.6 2.4 288 50 3.6 180 90 1.2 108 90 0.6 54 140 6 2.4 336 35 3.6 126 80 0.6 48 1.2 102 85 110 2.4 264 12 65 3.2 208 85 1.2 102 155 75 0.6 45 2.4 372 65 10 3.2 208 1.2 102 155 12 95 0.6 57 2.4 372 65 85 3.2 208 95 1.2 102 0.6 57 140 16 85 2.4 336 70 3.2 224 1.2 106 0.5 48 80 90 170 2.4 408 18 50 3.2 160 1.2 108 80 170 110 2.4264 30 3.2 96 0.6 102 90 120 0.6 72 90 1.2 108 80 2.4 192 90 35 3.2 112 70 1.2 84 100 0.6 60 80 2.4 192 100 25 3.2 60 1.2 96 70 3.2 80 110 90 0.6 54 80 2.4 168 25 1.2 84 50 80 0.6 48 70 140 2.4 120 10 3.2 32 1.2 70 60 30 120 0.6 42 50 0 2.4 72 0 3.2 1.2 60 20 80 0.6 48 50 0 130 2.4 48 0 3.2 70 0.6 42 30 1.2 36 10 0 170 2.4 24 0 3.2 1.2 84 30 65 0.6 39 70 0 100 2.4 72 0 3.2 1455 1390 65 1265 1225 40 1600 1700 1 00 580 555 25 1120 0 1120

8143 Adual 10320 0 789 Total loss prod. 1624.42 8695.58 8208 8184 1.003 8143 10.936 -65 Mh" excludes daywork Check adual 10320.00

Figure B . 1 Loss o f productivity due to disruption: data

286

Construction Contract Claims